Federal Solar Tax Credit in 2026: What Changed and What May Still Apply

The Short Version

The 30% federal credit for homeowners who buy solar (the residential clean energy credit, Section 25D of the tax code) generally does not apply to expenditures made after December 31, 2025. This changed when Congress passed Public Law 119-21 (the "One Big Beautiful Bill Act") on July 4, 2025, ending the credit earlier than the previous 2032 phase-out schedule. Older articles, including earlier versions of this page, that describe a 30% credit through 2032 are out of date.

It is a credit, not a deduction: it reduces the tax you owe, dollar for dollar, rather than reducing the income that is taxed.

When Is the Expenditure "Made"?

According to the IRS, an expenditure for solar equipment is treated as made when the original installation is completed, not when you sign a contract, pay a deposit or pay the invoice. For a newly built home, it is treated as made when you begin using the home. If the installation is completed after December 31, 2025, the Section 25D credit is unavailable even if you paid earlier. If your installation was completed in 2025 or earlier, the rules for that tax year still apply.

If Your System Was Completed in 2025 or Earlier

You may be able to claim the credit for the tax year the system was completed, using IRS Form 5695 (Residential Energy Credits) with your Form 1040. For property placed in service in 2022 through 2025 the credit rate is 30%. The credit is not refundable, but under the 2025 Form 5695 instructions an unused portion can be carried forward to 2026. Battery storage with a capacity of at least 3 kWh was eligible for installations completed in those years. Check the current Form 5695 instructions or a tax professional for how it applies to you, including which costs count and how the credit is limited by your tax liability.

If Your System Will Be Completed in 2026 or Later

You should not assume any federal credit when you buy solar yourself with cash or a loan. Compare quotes on the full installed price. For example, a $25,000 system that would once have been reduced by $7,500 now costs $25,000 before any state, local or utility incentives. That makes payback periods longer than many older guides show, including figures that previously appeared on this site.

Leases, PPAs and the Commercial Credits (Sections 48E and 45Y)

This area is more complicated and should not be oversimplified. If a company owns the solar system on your roof under a lease or power purchase agreement (PPA), you do not claim a federal credit for it. The owner may, in some cases, be able to claim a business credit under Section 48E (or 45Y), but whether it can depends on conditions that vary by project: when construction began, when the system is placed in service, the type of property (solar or storage), who owns it, and other rules. Under IRS Notice 2025-42, solar facilities that begin construction after July 4, 2026 generally must be placed in service by the end of 2027 to qualify; facilities that began construction earlier follow different timing rules. Energy storage is treated separately from solar, and additional restrictions can apply, so we have not verified any particular provider's eligibility.

Even if a provider is eligible, it is not required to pass any saving on to you, and a lease or PPA is not automatically cheaper than buying. Ask for the full contract: the monthly payment or per-kWh rate, any annual escalator, the term, buyout and transfer terms if you sell, and who is responsible for repairs. Because you would not own the asset, a conventional "payback period" does not apply to a lease or PPA; compare your total payments over the term with what you would otherwise pay your utility.

State, Local and Utility Incentives

State tax credits, rebates, performance payments, property or sales tax exemptions, and net metering rules differ by location and change often. We have not independently verified current amounts for every program. Check your state's page in the Database of State Incentives for Renewables and Efficiency (DSIRE), your utility, and your installer's written proposal before relying on any figure. Our guide to state and local solar incentives lists examples, not guarantees.

Common Mistakes to Avoid

Don't assume that an article, calculator or quote that deducts 30% is current; ask the installer in writing whether any federal credit is included and on what basis. Don't count a deposit or contract date as the date the expenditure was made. Don't treat a lease or PPA as eligible for a homeowner credit. Keep contracts, invoices, proof of completion and proof of payment for your tax records.

Planning Your Decision

Without the residential credit, whether solar makes financial sense depends more on your electricity rates, how much of your usage the system offsets, how your utility credits exported power (net metering), local incentives, financing costs, and how long you expect to stay in the home. Use quotes from at least three installers and read about solar financing options, net metering and the solar payback period before deciding.

Sources

IRS FAQs on modifications of sections 25C, 25D and others under Public Law 119-21; IRS Instructions for Form 5695; IRS Notice 2025-42 (beginning of construction for sections 45Y and 48E). Tax law can change; check irs.gov for the latest.

Consulting a Tax Professional

This guide is general information only and is not tax, legal or financial advice. Consult a qualified tax professional about how these rules apply to your circumstances, especially if your installation date, ownership structure or tax situation is unusual.