What Happened to the 30% Federal Solar Tax Credit
· updated
For most of the last decade, “30% off with the federal solar tax credit” was the opening line of every solar sales pitch. As of 2026, that is no longer true for a system you buy and own. This is the single biggest change to home-solar economics in years, so it is worth understanding exactly what happened and what is left.
The credit that existed
The federal Residential Clean Energy Credit — Internal Revenue Code §25D — let a homeowner who purchased and owned a solar electric system claim 30% of the total cost as a non-refundable credit against their federal income tax, with any unused amount carried forward to future years. It covered panels, inverters, wiring, mounting hardware, labour, permitting, and (when installed with solar) battery storage.
The Inflation Reduction Act of 2022 had set the credit at 30% through 2032, then a step-down to 26% in 2033 and 22% in 2034. Homeowners and installers planned around that schedule.
What changed
The One Big Beautiful Bill Act, signed into law in July 2025, repealed §25D for expenditures made after December 31, 2025. The credit now turns on an “expenditures made” test — the date you paid for the system — rather than the older “placed in service” test. If your qualifying costs were paid in 2026 or later, the credit is zero — not a reduced percentage, none. The incentive ended roughly seven years ahead of the previously legislated schedule.
Who is grandfathered
- Paid for the system in 2025 (or earlier). You keep the 30% credit even if the panels were installed and switched on in 2026, because the test is when the expenditure was made. You can still carry forward any unused portion on future returns under the normal rules. Keep proof of the 2025 payment.
- Paying for the system in 2026 or later. No federal §25D credit on the purchase. Your net cost is the full contract price minus any state or utility incentives only.
- Confirm the timing with a tax professional if your payments straddle the year end — partial payments and financing complicate which costs count as “made” in 2025.
What this does to payback
Payback is net cost ÷ annual savings. Removing a 30% credit raises the
numerator by roughly 43% (because you divide by 0.7 to get back to the gross
price). In practice:
| Scenario | With old 30% credit | 2026, no federal credit |
|---|---|---|
| $21,000 system, saves $1,900/yr | ~7.7 years | ~11.1 years |
| $24,000 system, saves $1,500/yr | ~11.2 years | ~16 years |
The better your electricity rate and sun, the more the system still makes sense; the more marginal it was, the more the missing credit tips it into “not worth it.” See Is solar worth it?.
What still exists
- State and utility incentives. Many states run their own tax credits, upfront rebates, or performance-based incentives (payments per kWh produced), entirely independent of federal law. With the federal credit gone, these are now the main lever — check your state energy office and your utility before assuming there is nothing.
- Net metering. Unaffected by this change; it is set by state and utility policy. A favourable export rate can be worth more than the old tax credit over the system’s life. See net metering explained.
- The commercial credit, §48E, remains available (through 2027 under current law) for business-owned systems. This is why a solar lease or power-purchase agreement (PPA) can still deliver credit value indirectly: the installer owns the system, claims §48E, and — in principle — passes some of that value through in a lower monthly payment. You do not receive the credit yourself, and the usual trade-offs of leasing (smaller lifetime savings, a lien or contract on the home, escalator clauses) still apply. See how solar panels are priced.
- Sales-tax and property-tax exemptions for solar equipment exist in many states and are unaffected.
State incentives now do the heavy lifting
With no federal credit, the incentives that remain are entirely state, local, and utility level — and they vary enormously. The main types:
- State income-tax credits. A handful of states offer their own percentage credit (some capped at a few thousand dollars). Check your state’s department of revenue or energy office.
- Upfront rebates. A fixed dollar amount, or a per-watt amount, paid by the state or the utility, often first-come-first-served until the budget runs out.
- Performance-based incentives (PBIs) / SRECs. You are paid per kWh (or per MWh via a “solar renewable energy certificate”) your system produces, for a set number of years. In the states that have an active SREC market these can be worth more than the old federal credit over the system’s life — but prices fluctuate.
- Property-tax exemptions. Many states exclude the added home value from solar from your assessment, so a $20,000 system does not raise your property tax.
- Sales-tax exemptions on the equipment.
- Net metering — technically a rate policy, not an incentive, but the single biggest financial factor. See net metering explained.
Because these do not stack the way people assumed the federal credit did, add them up explicitly for your address before you model a payback.
What to do now
- Get three quotes and compare them on dollars per watt, cash price (not the dealer-financed price).
- Add up your state and utility incentives explicitly — they carry more weight now.
- Confirm your net-metering rules and how long they are grandfathered.
- Model the payback yourself with your real electricity rate and usage.
The bottom line
The 30% federal residential solar credit (§25D) is gone for costs paid in 2026 or later, repealed in 2025. If you paid for the system in 2025, you keep it even if it was installed in 2026. Solar can still pay off — high electricity rates, good sun, a suitable roof, and long tenure still add up — but the math is less forgiving and now leans on state incentives and net metering. The solar savings calculator applies a $0 federal credit by default to match current law.