Solar Tax Credit 2026: What Changed and Who Still Qualifies

If you buy a home solar system outright or with a loan in 2026, there is no longer a federal tax credit for it. The Residential Clean Energy Credit (Section 25D), the 30% credit most homeowners knew, was ended by the 2025 budget law (Public Law 119-21) for expenditures made after December 31, 2025. Leased systems, power purchase agreements and commercial systems are treated differently, and state and utility programs are still in place, so the full picture is more mixed than "the credit is gone."

This guide walks through what changed, who still gets a federal credit, how batteries fit in, and what to ask a solar company before you sign anything this year. It is general information, not tax advice. Your accountant and the current IRS guidance have the final word.

The homeowner credit: what ended and when

Section 25D let a homeowner subtract 30% of the cost of a solar system (panels, inverter, racking, wiring, labour, permits) from their federal income tax. It also covered battery storage of at least 3 kWh, even when the battery was installed without panels.

The new law cut the credit off for expenditures made after December 31, 2025. For 25D, the IRS has long treated an expenditure as made when the installation is complete, not when you signed the contract or paid a deposit. That detail matters:

• A system that was fully installed by December 31, 2025 can still qualify, claimed on the 2025 return with Form 5695.
• A system that was signed and paid for in late 2025 but finished in January 2026 generally does not qualify.
• Any 25D credit that was larger than your 2025 tax bill can still be carried forward to later years, as before.

If your installer told you in 2025 that a project would "lock in" the credit with a deposit, ask for the completion date in writing and confirm it with your tax preparer.

Leases and PPAs still carry a federal credit

Systems owned by a third party are a different case. With a solar lease or a power purchase agreement (PPA), the solar company owns the equipment on your roof and you pay a monthly amount or a rate per kWh. Because the owner is a business, it claims the business credit under Section 48E, not 25D.

The 2025 law kept 48E for solar but put a clock on it. Solar projects that begin construction after July 4, 2026 must be placed in service by the end of 2027 to qualify, and new restrictions on equipment and components sourced from certain foreign entities apply. The homeowner does not claim anything. Whether any of the credit reaches you depends on how the company prices the lease or PPA.

That makes the comparison less obvious than it was. Points to weigh:

• Ownership. With a lease you do not own the system, so you also do not own the production, and selling the house means transferring or buying out the contract.
• Escalators. Many PPAs raise the rate every year. A 2.9% yearly increase on a 25-year contract adds up.
• Maintenance. The owner usually handles repairs and inverter replacement, which has real value given that inverters tend to be the first part to fail.
• Timing. A quote that depends on the 48E credit should say how the company will handle it if the project slips past a deadline.

Batteries in 2026

Home batteries were covered by 25D, so a battery bought and installed by a homeowner in 2026 also has no federal credit. A battery included in a leased or PPA system, or installed at a business, falls under the business rules instead.

Batteries can still make sense without a credit. The usual reasons are backup power during outages, utility rates that pay little for exported solar, and time-of-use pricing that makes evening power expensive. The sizing question is the same as before: which circuits you want to keep running (fridge, furnace fan, sump pump, some lights) and for how long. Battery quotes start from that list, and you can request one here.

Businesses and farms

Commercial owners claim 48E directly, with the same construction-start and placed-in-service rules described above. Larger commercial projects also have prevailing wage and apprenticeship requirements to get the full credit rate, while smaller systems are generally exempt from those. Accelerated depreciation (MACRS) for solar equipment remains part of the calculation for businesses.

For a warehouse, office or farm considering solar, the practical step is to settle the timeline early. Utility interconnection studies and permits on larger systems can take months, and a project that misses a deadline by a few weeks can lose the credit entirely. Your tax adviser should confirm what counts as "beginning construction" for your project under current Treasury guidance.

State and utility programs did not go away

The federal change does not touch state tax credits, utility rebates, property tax exemptions or net metering. Depending on where you live, these may now carry most of the financial case:

• Net metering or net billing decides what your utility pays or credits for solar power you send back to the grid. It varies by state and by utility, and some states have moved from full retail credit to lower export rates.
• State tax credits exist in a handful of states, each with its own cap and rules.
• Property tax exemptions in many states keep a solar system from raising your assessed value.
• Sales tax exemptions on solar equipment apply in several states.
• Utility rebates come and go with program budgets and are often first come, first served.

A good quote names the programs that may apply to your address and what paperwork each one needs. If a quote shows a large "incentive" line with no explanation, ask which program it is and whether it is guaranteed.

How the numbers change without 25D

Removing a 30% credit stretches the payback period on a cash purchase, sometimes by several years. What has not changed is the way to judge a system: compare its expected yearly production in kWh with what that power is worth under your utility's rates and export rules, and set that against the full installed price.

Things that improve the result without any federal help:

• A system sized from twelve months of real usage, not a standard package that overproduces at a low export rate.
• A roof that will not need replacing in the next few years, so you avoid paying for panel removal and reinstallation later.
• An honest shading review, since a few hours of shade a day can cut output more than people expect.
• Competing written quotes that state the price per watt and the production estimate the same way.

We work with homeowners and businesses across the US, for example in Phoenix and New York, as well as in Canada, where none of these US federal rules apply.

Frequently asked questions

Can you still claim the solar tax credit for a system installed in 2025?

Yes, if installation was complete by December 31, 2025, the expenditure generally falls within the old rules and can be claimed on your 2025 return using Form 5695. Unused credit can be carried forward to later tax years. If the work finished in 2026, the homeowner credit is generally not available.

Is a solar lease a better deal now that the 25D credit has ended?

Not automatically. The leasing company can still claim the business credit, but how much of that value shows up in your monthly payment varies a lot between contracts. Compare the total paid over the full term, the yearly escalator and the buyout terms against the cost of owning the system outright.

Does the federal change affect net metering?

No. Net metering and net billing are set by state regulators and utilities, not by the federal tax code. Check your own utility's current rules, because they often matter more to your savings than any single incentive.

Do Canadian homeowners lose anything from this US change?

No. The US credits never applied in Canada. Canadian incentives come from provincial programs, utilities and occasional federal programs, and they have their own eligibility rules and deadlines.

Get a quote that shows the real numbers

If you are weighing solar or a battery this year, send us your city, the type of property and your average monthly electricity bill. A local solar specialist reviews the roof and your usage and puts the system size, expected yearly production, applicable programs and price in a written quote. Requesting a quote is free and there is no obligation.