Solar Tax Credit Laws in USA (2026): The Credits Just Ended
Most people have no idea the residential solar tax credit is gone. Seriously. The federal solar tax credit that saved homeowners 30% on their solar installations ended on December 31, 2025. If you installed solar in 2025, you can still claim it. If you’re planning to install in 2026, the rules changed big time.
Let’s break down exactly what you need to know.
What Was the Federal Solar Tax Credit?
The federal solar tax credit was huge. It let homeowners claim 30% of their solar system costs as a tax credit. Not a deduction. An actual dollar-for-dollar reduction in your tax bill.
This thing was officially called the Residential Clean Energy Credit. It covered solar panels, solar water heaters, wind turbines, geothermal heat pumps, and battery storage. Pretty much any clean energy system you installed at your home.
Here’s an example. Say you spent $20,000 on a solar system in 2025. You could claim a $6,000 tax credit when you filed your 2025 taxes. That $6,000 came straight off your tax bill. Simple as that.
The credit had been around since 2006. It helped millions of Americans go solar. But in 2025, Congress passed the One Big Beautiful Bill Act. That law killed the residential credit effective January 1, 2026.
The Residential Credit Is Dead (But There’s a Catch)
Okay, pause. Read this carefully.
If you installed your solar system in 2025 and it was fully operational by December 31, 2025, you can still claim the 30% credit. You’ll file IRS Form 5695 with your 2025 tax return. More on that in a minute.
But if you’re installing solar in 2026 as a homeowner who owns the system, there’s no federal tax credit anymore. Zero. That ship sailed.
Hold on, this part is important.
There’s still a way to get federal benefits in 2026. But it’s not the same credit. You have to use a third-party ownership arrangement. These are called leases or Power Purchase Agreements.
In these arrangements, a solar company owns the system on your roof. They claim the federal tax credit. You pay them monthly for the power the system generates. They usually pass some of the tax credit savings to you through lower monthly rates.
This option uses the commercial solar tax credit, which still exists. We’ll get to that.
What Qualified for the Residential Credit (If You Installed in 2025)
Wondering if your 2025 installation counts?
Here’s what qualified:
Solar Electric Systems These are your standard rooftop solar panels. They had to generate electricity for your home. Solar shingles and solar roof tiles counted too. They generate power, so they qualified.
Regular roof materials didn’t count. If you replaced your whole roof and added solar panels, only the solar equipment qualified. The regular shingles or roof trusses didn’t.
Solar Water Heaters These had to be certified by the Solar Rating Certification Corporation. You couldn’t just slap any water heater on your roof and call it solar. It needed proper certification.
Battery Storage Standalone battery systems qualified if they had at least 3 kilowatt hours of capacity. You didn’t need solar panels to claim the battery credit. This changed under the Inflation Reduction Act in 2022.
Before that, you could only claim batteries if you installed them with solar. After 2022, batteries qualified on their own. As long as you installed them by December 31, 2025, you’re good.
Other Clean Energy Systems Geothermal heat pumps counted. Small wind turbines too. Fuel cells also qualified, but those had a cap of $500 per half-kilowatt of capacity.
Requirements to Claim the Credit (For 2025 Installations)
Not sure what counts as installed? Let me break it down.
You Had to Own the System If you leased your solar system or signed a power purchase agreement, you couldn’t claim the credit. The company that owned the system claimed it instead.
If you financed your system with a loan, that’s fine. You still owned it. You could claim the credit.
The System Had to Be Operational Your system had to be installed and working by December 31, 2025. Just ordering panels or making a deposit didn’t count. The system had to be capable of generating power.
Most installers confirmed this with a permission to operate document from your utility company. That’s the official date your system was placed in service.
It Had to Be at a U.S. Residence Your home had to be in the United States. It could be your primary home or a second home. As long as you lived in it part of the year and didn’t rent it out, it qualified.
If you were a landlord, you couldn’t claim the credit for rental properties.
You Needed Tax Liability This is super important. The credit was nonrefundable. That means it could reduce your tax bill to zero, but you couldn’t get money back beyond what you owed.
If you owed $4,000 in taxes and had a $6,000 credit, you’d use $4,000 of it. The remaining $2,000 carried forward to future tax years. You could keep carrying it forward until you used it all up.
How to Claim the Credit (If You Installed in 2025)
Here’s what you need to do.
Get Your Documentation Keep every receipt. Every invoice. Every contract. The IRS doesn’t require you to submit these with your tax return. But if you get audited, you’ll need them.
Your installer should give you a final invoice showing the total system cost. That includes panels, inverters, batteries, labor, permits, everything. You need that total number.
Fill Out IRS Form 5695 This form is specifically for residential energy credits. You can download it from the IRS website. Make sure you get the 2025 version.
Line 1 asks for qualified solar electric property costs. Enter your total system cost here. If you had other clean energy improvements, enter those on the other lines.
Add up all your costs. Multiply by 30%. That’s your credit amount.
You might need to complete the credit limitation worksheet. This checks if your tax liability limits how much credit you can use this year.
Transfer to Schedule 3 and Form 1040 Take the credit amount from Form 5695 line 15. Put it on Schedule 3 line 5.
Then take the total from Schedule 3 and add it to Form 1040 line 20. Attach Form 5695 to your tax return.
That’s it. You’ve claimed your credit.
Adjustments and Deductions
Sound complicated? It’s actually not.
Rebates Reduce Your Credit If your utility company gave you a rebate for installing solar, you have to subtract that from your system cost before calculating the credit.
Say your system cost $20,000. Your utility gave you a $2,000 rebate. Your qualified cost is $18,000. Your credit is 30% of $18,000, which is $5,400.
State Rebates Usually Don’t Count Most state-level rebates don’t reduce your federal credit. The IRS treats them differently than utility rebates. But check with a tax professional to be sure.
Net Metering Doesn’t Affect the Credit If your utility pays you for excess power your system sends to the grid, that doesn’t reduce your credit. Those are payments for electricity, not rebates on your system cost.
The Commercial Solar Tax Credit (Section 48E)
Now, here’s where it gets interesting.
The commercial solar tax credit still exists. It’s 30% just like the old residential credit. But it has different rules and different deadlines.
Who Can Use It Businesses can use it. Commercial property owners. Non-profit organizations. And companies that own solar systems on residential properties through leases or PPAs.
That last part matters for homeowners. If you lease a system in 2026, the leasing company uses this credit. They keep the benefit, but they usually pass some savings to you.
The Deadlines Are Tight Projects must begin construction by July 4, 2026. Or they must be fully operational by December 31, 2027.
If you miss both deadlines, there’s no federal solar tax credit at all.
What counts as beginning construction? The IRS has two tests. For smaller systems under 1.5 megawatts, you can use the 5% safe harbor. That means spending at least 5% of your total project cost early in the year.
For larger systems, you need to start actual physical work. Ordering equipment isn’t enough anymore. You need boots on the ground, installing racking or doing site prep.
Foreign Entity of Concern Rules This one’s new. At least 40% of the value of your solar equipment must come from manufacturers that aren’t Chinese, Iranian, Russian, or North Korean.
The Treasury Department is still writing detailed guidance on this. But basically, if too much of your equipment comes from restricted countries, you lose part or all of your credit.
Third-Party Owned Solar in 2026
You’re not alone, this confuses a lot of people.
If you want federal benefits in 2026, you’ll probably need a lease or Power Purchase Agreement. These are called third-party owned systems.
How Leases Work A solar company installs panels on your roof. They own the system. You pay them a monthly fee, kind of like a subscription.
The solar company claims the federal commercial tax credit. They use that savings to offer you lower monthly payments than you’d otherwise pay.
You don’t own the system. But you also don’t pay for maintenance or repairs. The solar company handles all that.
How Power Purchase Agreements Work Similar to a lease, but you pay per kilowatt-hour of electricity the system produces. Instead of a flat monthly fee, you pay based on actual production.
The rate is usually lower than your utility’s rate. So you save money on your electric bill.
The solar company still owns the system and claims the tax credit.
Pros and Cons The upside is you get access to federal benefits without needing tax liability. The solar company uses the credit, not you. So even if you don’t owe much in taxes, you can still benefit.
The downside is you don’t own the system. If you sell your house, the new owner has to take over the lease or you have to buy out the contract. That can complicate home sales.
Personally, I think this setup makes sense for people who want solar but don’t have the tax liability to use a credit directly. But if you prefer to own your system outright, you’ll have to weigh the numbers carefully.
State and Local Solar Incentives
Hold on, this gets better.
Even though the federal residential credit is gone, many states still offer their own incentives. These vary wildly by state.
State Tax Credits Some states give their own tax credits. Massachusetts has one. New York has programs too. These are separate from the federal credit and they’re still available.
Check your state’s energy office website. Or search the DSIRE database. That’s the Database of State Incentives for Renewables and Efficiency.
Property Tax Exemptions Many states don’t count your solar system when calculating property taxes. So even though solar increases your home value, your property tax doesn’t go up.
Florida has this. California too. It’s a huge benefit over the life of your system.
Sales Tax Exemptions Some states exempt solar equipment from sales tax. If your state has a 7% sales tax, that’s a 7% savings on a $20,000 system. That’s $1,400.
Utility Rebates Your local utility might offer cash rebates for installing solar. These are often first-come, first-served. Once the utility hits its budget cap, the rebates disappear.
Call your utility or check their website. Ask specifically about solar rebates or renewable energy programs.
Solar Renewable Energy Credits (SRECs) In some states, you earn credits for every megawatt-hour your system produces. You can sell these credits to utilities. They need them to meet renewable energy requirements.
New Jersey has a strong SREC market. Massachusetts too. Pennsylvania. These can add thousands of dollars to your solar investment over time.
Yep, that’s all you need to know about state programs. They’re different everywhere, so do your homework for your specific location.
Net Metering Laws
This one’s probably the most important ongoing benefit.
Net metering is how utilities credit you for excess electricity your solar system produces. When your panels generate more power than you use, the extra goes to the grid. Your meter spins backward. You get credits on your bill.
Federal Net Metering Rules There aren’t really federal net metering rules. Each state and utility sets its own policy.
Some states require utilities to offer full retail credit. That means you get the same rate for exported power as you pay for imported power.
Other states use avoided cost rates. You might get 3 cents per kilowatt-hour for power you export, even though you pay 15 cents for power you import. That’s a massive difference.
Why This Matters in 2026 Without the 30% federal credit, net metering becomes even more critical. If you only get a few cents per kilowatt-hour for your excess power, your payback period stretches way out.
Before signing a solar contract, ask about net metering policies in your area. Make sure you understand the rate you’ll get for exported power.
Some utilities are trying to reduce net metering benefits. They argue solar customers aren’t paying their fair share for grid maintenance. Watch for policy changes in your state.
Penalties for False Claims
Don’t worry, we’ll break it down step by step.
If you claim the solar tax credit fraudulently, you’re in trouble. The IRS can assess penalties and interest. You’ll have to pay back the credit plus 20% of the fraudulent amount.
In extreme cases, you could face criminal charges for tax fraud.
What Counts as Fraud Lying about system costs. Claiming credits for systems that don’t exist. Inflating invoices. All of these are fraud.
If you make an honest mistake, that’s different. The IRS will usually just make you pay back the credit plus interest. No criminal charges.
Keep Good Records The best protection is documentation. Save your contracts, invoices, permits, and receipts. If the IRS audits you, show them the paperwork. If everything’s legit, you’re fine.
Most people don’t realize how strict these laws are. But honestly, if you’re honest about your costs and follow the rules, you’ve got nothing to worry about.
What Happens in 2027 and Beyond
Okay, this one’s important.
The commercial solar tax credit (Section 48E) ends December 31, 2027. After that, there’s no federal solar tax credit for residential systems at all. Not for owned systems. Not for leases. Nothing.
Unless Congress passes new legislation, 2027 is the last year for any federal solar tax benefits.
Will Congress Extend the Credits? Who knows. Solar tax credits have been extended before. The original credit was supposed to expire in 2007. Congress kept extending it.
But the political situation is different now. The One Big Beautiful Bill Act was specifically designed to end these credits. Reversing that would require new legislation.
Don’t count on an extension. If you want federal benefits, act before the deadlines.
What About Future Incentives? States might step up. Some already are. New York is expanding its programs. California has various incentives. Illinois too.
The solar industry isn’t going away. Costs keep dropping. Electricity rates keep rising. Eventually, solar makes financial sense even without subsidies.
But yeah, losing the federal credit definitely hurts. No question about that.
How to Decide If Solar Still Makes Sense
Trust me, this works.
Without the 30% federal credit, the math changes. But solar can still be worth it. Here’s how to evaluate.
Calculate Your Electricity Costs Look at your electric bills for the past year. Add them up. That’s your annual electricity cost.
Now project that forward 25 years. Assume your rates increase 3% to 5% per year. That’s conservative. Some areas see faster increases.
Compare that total to the cost of a solar system. If solar is cheaper over 25 years, it makes financial sense.
Consider State and Local Incentives Add up whatever incentives your state offers. Property tax exemptions. Sales tax exemptions. Rebates. SRECs.
These can make a big difference. In some states, local incentives nearly replace the federal credit.
Factor in Utility Rate Structure If you have time-of-use rates, solar might save you more. You produce power during expensive peak hours. You buy power during cheap off-peak hours.
If you have flat rates, solar still saves money. But the savings might be smaller.
Think About Energy Independence This part can be tricky, honestly. Some people value having backup power during outages. If you add batteries, you’re protected when the grid goes down.
That’s worth something. But batteries are expensive. You have to decide if the peace of mind justifies the cost.
Get Multiple Quotes Always get at least three quotes from different installers. Compare system sizes, equipment quality, financing terms, and warranties.
Some installers charge way more than others for the same equipment. Shop around.
Frequently Asked Questions
Can I still claim the federal solar tax credit in 2026? Only if you installed your system in 2025 and it was fully operational by December 31, 2025. You’ll claim it on your 2025 tax return.
What if I started my solar project in 2025 but didn’t finish until 2026? You miss the residential credit. The system had to be operational by the deadline. Starting the project isn’t enough.
Can I claim the credit for a solar system on a rental property? No. The residential credit was only for homes where you lived. Rental properties didn’t qualify. Landlords had to use commercial programs instead.
What happens if my solar tax credit is more than my tax bill? You can carry the unused portion forward to future years. The credit is nonrefundable, so you can’t get cash back. But you don’t lose it either.
Do solar leases still get federal benefits in 2026? Yes. The leasing company claims the commercial tax credit. They typically pass some savings to you through lower monthly payments. This option ends December 31, 2027.
Final Thoughts
Now you know the basics. The residential solar tax credit ended December 31, 2025. If you installed before that, claim your credit. If you’re planning to install in 2026, look into leases or state programs.
Solar still makes sense for a lot of people. The math just changed. Do your homework. Get multiple quotes. Check state incentives. And if you’re unsure, talk to a tax professional or a reputable solar installer.
Stay informed, stay smart, and make the choice that’s right for your situation.
References
- Internal Revenue Service, “Residential Clean Energy Credit,” https://www.irs.gov/credits-deductions/residential-clean-energy-credit
- Internal Revenue Service, “Instructions for Form 5695 (2025),” https://www.irs.gov/instructions/i5695
- Solar Energy Industries Association, “Solar Investment Tax Credit (ITC),” https://seia.org/solar-investment-tax-credit/
- U.S. Department of Energy, “Federal Tax Credits for Energy Efficiency,” https://www.energystar.gov/about/federal-tax-credits
- Database of State Incentives for Renewables & Efficiency (DSIRE), https://www.dsireusa.org/