Solar Tax Credit 2026: Your Complete Guide to Federal Rules and State Savings

According to the IRS Residential Clean Energy Credit page (checked Oct 21, 2026), the federal 30% credit for home solar “is not available for any property placed in service after December 31, 2025.” That makes the solar tax credit 2026 story a new one: homeowners who buy a system this year save through carryforwards, state credits, tax exemptions, rebates and performance payments instead. The good news is that those programs can still cut thousands off a system, and this guide shows where to find them and how the math works.

Solar Tax Credit 2026 at a Glance

Program	Status in 2026 (as of Oct 21, 2026)
25D credit for homeowner-owned solar and batteries installed in 2026	Not available (IRS)
Unused 25D credit from 2025 or earlier	Still carries forward to future tax years (IRS)
48E credit on leased and PPA systems	Claimed by the system owner; new solar that began construction after July 4, 2026 must be in service by Dec 31, 2027 (Public Law 119-21)
25C Energy Efficient Home Improvement Credit	Not available for property placed in service after Dec 31, 2025 (IRS)
State, utility and local incentives	Available in many states; check DSIRE

What Changed: The Federal 25D Credit

The Residential Clean Energy Credit (IRC 25D) paid 30% of qualified costs for solar panels, solar water heaters, small wind, geothermal heat pumps, fuel cells and batteries of at least 3 kWh installed from 2022 through 2025. The July 4, 2025 tax law, Public Law 119-21, moved the end date up from 2032 to Dec 31, 2025, and the IRS page now reflects that cutoff.

The install date is what counts. The IRS says you claim the credit “for the tax year when the property is installed, not merely purchased.” A contract signed and paid in 2025 for a system finished in 2026 does not qualify. Homeowner-owned batteries installed in 2026 are outside the credit too.

How the credit got here

Install year	Credit rate	Law
2006–2019	30%	Energy Policy Act of 2005, later extended
2020–2021	26%	Step-down under the 2015 extension
2022–2025	30%	Inflation Reduction Act of 2022
2026 and later	0% for homeowner-owned systems	Public Law 119-21 (July 4, 2025)

Before the 2025 law, the Inflation Reduction Act had scheduled 30% through 2032. That is why older articles and sales sheets still quote a 2026 credit, so always check the date on what you read.

What Is Still Available

Carryforwards from a 2025 install

25D was nonrefundable: it could lower your federal income tax to zero, but extra credit was not paid out. The IRS says you “can carry forward any excess unused credit” to future years, and you use Form 5695 each year to figure it. Here is how that works with simple numbers (illustrative only):

Item	Amount
2025 system cost (solar + battery), installed by Dec 31, 2025	$30,000
25D credit at 30%	$9,000
Federal income tax owed for 2025	$6,000
Credit used on the 2025 return	$6,000
Carried forward to 2026	$3,000

On your 2026 return you claim the $3,000 against 2026 tax. If you owe only $2,000, the remaining $1,000 rolls into 2027. A tax professional can confirm how this applies to your return.

Leases and PPAs

With a lease or power purchase agreement, the company owns the equipment and may claim the clean electricity investment credit (IRC 48E), which can show up as a lower monthly price. Under Public Law 119-21, solar facilities that begin construction after July 4, 2026 must be placed in service by Dec 31, 2027 to qualify. The IRS rules for proving when construction began (Notice 2025-42) were vacated by a federal district court on June 6, 2026 and sent back to the IRS, according to EY Tax News, so this area is still settling. Ask any provider in writing:

• Does the price assume a 48E credit, and what happens to my payment if the project does not qualify?
• What is the annual escalator (for example 0%, 1.9% or 2.9% a year)?
• What is the buyout price, and what happens if I sell the house?

Our lease vs loan vs cash comparison and lease buyout guide cover these terms in more depth.

Solar Incentives by State: The Main Types

With the federal credit gone for owned systems, state and local programs carry most of the value in 2026. They usually fall into six groups:

• State income tax credits: a share of cost, often capped
• Sales tax exemptions on solar equipment
• Property tax exemptions so added home value is not taxed
• Rebates from state energy offices or utilities
• Performance payments and SRECs paid per kWh or MWh produced
• Battery incentives for storage or demand response

State programs worth checking

These long-running programs are described by state agencies and DSIRE. Caps and funding change, so confirm the current version before you count on one.

State	Program type	Details as published
New York	State income tax credit	25% of qualified solar costs, capped at $5,000 (Solar Energy System Equipment Credit); state sales tax exemption on residential solar equipment
Arizona	State income tax credit	25% of cost, up to $1,000 (Residential Solar Energy Credit)
South Carolina	State income tax credit	25% of cost, up to $3,500 a year, unused credit carried forward up to 10 years
Florida	Sales and property tax exemptions	Solar equipment exempt from sales tax; added value excluded from property tax assessment
Texas	Property tax exemption	Added value from solar excluded from appraised value
California	Property tax exclusion, storage program	Active solar exclusion from reassessment; SGIP rebates for batteries; net billing tariff for investor-owned utilities
Massachusetts	Performance-based incentive	SMART program payments per kWh, by utility territory and block
New Jersey	Performance-based incentive	Administratively Determined Incentive (ADI), which replaced SREC-II, pays per MWh produced

Worked Example: Federal Then vs State Now

Take a 7 kW system at Lawrence Berkeley National Laboratory’s 2024 cash median of $3.5/W, or $24,500 installed. Here is how the same system pencils out with the 2025 federal credit and with two 2026 state credits (illustrative; confirm eligibility):

	2025 (federal 25D)	2026 New York	2026 South Carolina
System price	$24,500	$24,500	$24,500
Credit	30% = $7,350	25% capped at $5,000	25% = $6,125, max $3,500 a year
Timing	Federal return	State return	$3,500 in year 1, $2,625 in year 2
Net cost after credit	$17,150	$19,500	$18,375 over two years

State credits now do much of the work the federal credit used to. At $1,960 of yearly bill savings, the New York credit shortens simple payback from about 12.5 years to about 10 years. Redo the math for your home with our solar payback period guide and are solar panels worth it in 2026.

Worked Example: Performance-Based Payments

SREC and per-kWh programs pay for production rather than cost. For a system producing 9,800 kWh a year (illustrative rates):

Payment basis	Example rate	Yearly payment
Per kWh	$0.05	$490
Per MWh (SREC)	$85	$833

These payments come on top of bill savings. Contract length and rate depend on the program and your enrollment date.

Stacking Incentives the Smart Way

State and utility programs can often be combined, such as a sales tax exemption plus a property tax exemption plus a utility battery rebate. Some rebates reduce the cost basis used by other programs, and the IRS notes that certain state incentives can count as federal taxable income, so check the rules or ask a tax professional before assuming everything adds up.

Battery incentives

Storage is one of the more active areas in 2026. Look for upfront rebates such as California’s SGIP, and for performance payments when you let the utility call on your battery during grid peaks, often called virtual power plant or demand response programs. Read the rules on backup reserve and how often your battery can be dispatched. See is a solar battery worth it, and for export rules, net metering vs net billing.

Step-by-Step: Find Your 2026 Savings

1. Search DSIRE by ZIP code and filter for residential solar and storage.
2. Open each program’s source link (state agency or utility) to confirm it is open and funded.
3. Check your utility’s website for rebates, battery programs and export tariffs.
4. Check your county for property tax exemptions and any filing required.
5. If you installed in 2025, keep your permission-to-operate letter, file Form 5695 and track any carryforward.
6. Ask installers to list each incentive in the quote with its source, and talk to a tax professional about timing.

Smart Questions for Your 2026 Quote

A good installer will happily answer these in writing:

• Is the quoted price before or after incentives, and which incentives exactly?
• If a federal credit is mentioned, which IRC section is it, and who claims it? For an owned system installed in 2026, 25D does not apply.
• Does any loan payment assume a lump-sum tax refund?
• Which state, utility or local programs are included, and are they confirmed or only applied for?

For more, see how to choose a solar installer.

Other Home Energy Credits

The Energy Efficient Home Improvement Credit (IRC 25C), which covered heat pumps, insulation and windows, also ended for property placed in service after Dec 31, 2025, according to the IRS. That leaves state and utility programs as the main source of help for home energy upgrades in 2026.

Bottom Line

The federal solar tax credit for owned systems ended with 2025 installs, but 2026 buyers still have real ways to save: carryforwards from earlier installs, lease pricing that may reflect the 48E credit, and state credits, exemptions and production payments that can trim thousands off a system. Check DSIRE, get every incentive in writing, and run your payback numbers on today’s rules.

Sources: IRS, Residential Clean Energy Credit (irs.gov, checked Oct 21, 2026); IRS, About Form 5695; IRS, Energy Efficient Home Improvement Credit; Public Law 119-21 (July 4, 2025); IRS Notice 2025-42 and EY Tax News on its June 6, 2026 vacatur in Oregon Environmental Council v. IRS; DSIRE (dsireusa.org); NY Department of Taxation and Finance; Arizona Department of Revenue; South Carolina Department of Revenue; Massachusetts DOER (SMART); NJ BPU (ADI); CPUC (SGIP); LBNL 2025 Data Update (cash median $3.5/W). Not tax advice.

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