Federal Solar Tax Credit Expired: What Homeowners Need to Know in 2026

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) terminated the 30% federal residential solar tax credit — Section 25D — effective December 31, 2025. There was no phase-down and no grace period: a credit that had been scheduled to run through 2034 ended abruptly, mid-decade, with about six months' notice.

For homeowners, this was the single biggest change to solar economics in over a decade. A credit worth roughly $9,000 on a typical $30,000 system disappeared overnight. This guide covers exactly what expired, who can still claim something, what incentives survive in 2026, and — most importantly — whether solar still makes financial sense without federal help.

The Full Expiration Timeline

The OBBBA staggered the sunset dates, which caused real confusion in late 2025. Here is the complete picture:

Section 48E is not a replacement homeowner credit. Do not include it in lease or PPA economics unless the project owner documents eligibility under current IRS rules.

Who Can Still Claim the 25D Credit

Two groups have not lost anything:

1. You completed installation in 2025. If your system was installed and operational by December 31, 2025, you claim the full 30% credit on your 2025 tax return using IRS Form 5695. If your tax liability is smaller than the credit, the unused portion carries forward to future tax years — you don't lose it.

2. A business owns the project. Section 48E may apply to an eligible business investment, but current IRS guidance denies the credit for certain residential solar leasing arrangements and adds timing, labor, and prohibited-foreign-entity restrictions. A homeowner should not assume that a lease or PPA price contains this credit.

How the Math Changed

The credit's expiration extends payback periods by roughly 40% on the same system. Here's the national-average picture for a 10 kW system:

†U.S. average rate of $0.15/kWh and 10,000 kWh/year offset. Excludes state incentives and rate inflation, both of which improve the numbers.

Two things keep this from being a death blow:

Electricity rates keep rising. EIA data shows residential rates climbing well above general inflation in most states since 2022. Every rate increase shortens your payback, because solar savings scale with what you'd otherwise pay the utility.

Where you live matters more than ever. At California's ~30¢/kWh, a system pays back in 7–9 years even with zero federal help. At Washington's ~11¢/kWh, payback can stretch past 20 years. The federal credit used to flatten these differences; now state economics dominate. See our state-by-state solar rankings for where the math still works best.

What's Still Available in 2026

The federal credit is gone, but the incentive landscape is far from empty. Everything below survived OBBBA untouched:

State tax credits

A handful of states offer their own income tax credits that stack with nothing federal required:

• New York — 25% of system cost, up to $5,000
• South Carolina — 25% of system cost (capped per year, carries forward)
• Hawaii — 35% of system cost, up to $5,000
• Arizona — 25%, up to $1,000
• Massachusetts — 15%, up to $1,000

Income-based federal rebates (HEAR / HOMES)

The IRA's Home Electrification and Appliance Rebates (HEAR) and HOMES efficiency rebates were funded separately from the tax credits and were not repealed. They're administered by state energy offices, are income-qualified, and in participating states can cover thousands of dollars of heat pumps, panel upgrades, and efficiency work. Availability varies — check your state's status with our IRA Rebate Eligibility Tool.

Net metering and utility programs

Net metering — the policy that credits you for excess solar sent to the grid — is state and utility territory, completely unaffected by OBBBA. So are utility rebates, battery programs like California's SGIP, and performance incentives like SRECs in New Jersey, Maryland, Pennsylvania, and D.C., which can pay solar owners $500–1,500 per year in some markets.

Property and sales tax exemptions

Most states exempt solar equipment from sales tax, added home value from property tax reassessment, or both. On a $30,000 system in a 6% sales-tax state, that exemption alone is worth $1,800.

Every state's full list is on our state incentive pages — each one sourced from DSIRE and the state energy office.

Lease and PPA Tax Treatment Is Contract-Specific

Section 48E is a business investment credit, not a consumer entitlement. The IRS Form 3468 instructions state that, for tax years beginning after July 4, 2025, no credit is allowed for certain residential solar or wind property rented or leased to a third party. Other requirements can include construction and placed-in-service timing, labor standards, and prohibited-foreign-entity rules. Under IRS Notice 2025-42, solar facilities that begin construction after July 4, 2026 must be placed in service by December 31, 2027 to claim the credit, and projects are subject to prohibited-foreign-entity (FEOC) sourcing rules — the project owner, not the homeowner, bears these requirements. Note that the residential-leasing denial targets certain leased solar and wind property; it is not a blanket exclusion of every third-party-owned system, so eligibility has to be checked contract by contract.

Compare a purchase, lease, and PPA using the actual contract cash flows. If a seller says a federal credit reduces the price, ask for the specific code section and written explanation; do not enter a credit merely because the system is third-party owned.

The trade-offs (escalator clauses, home-sale complications, no ownership of SRECs) haven't changed. We break them down in detail in our lease vs. PPA vs. buying guide.

Five Strategies for Going Solar in 2026

1. Get more quotes than you would have in 2025. Installer demand dropped sharply after the credit expired, and many are pricing aggressively to keep crews busy. National average pricing has drifted down toward $2.60–2.80/W; competitive bids matter more than any remaining incentive.
2. Size the system to your actual usage. Oversizing was forgivable when the government paid 30% of the excess. In 2026, every wasted watt is fully your money. Use 12 months of bills, not an installer's estimate.
3. Stack every state and utility incentive. With the federal layer gone, a $1,000 utility rebate or a state tax credit is now the difference-maker. Check DSIRE and your state's page before signing.
4. Run the lease math honestly. Compare the full contract term, escalator, transfer terms, maintenance responsibilities, and buyout provisions. Treat any claimed 48E price benefit as unverified until the project owner documents eligibility.
5. Don't automatically add a battery. Batteries also lost their 25D credit. They still make sense for outage-prone areas and unfavorable net-metering regimes (like California's NEM 3.0), but as a pure investment they now need a state program like SGIP to pencil out.

The Bottom Line

Solar in 2026 is a regional decision, not a national one. In high-rate states with strong net metering — California, Massachusetts, New York, Connecticut, Hawaii — payback periods of 7–11 years survive the credit's loss, and a 25-year return well into five figures is still realistic. In cheap-electricity states, the math has genuinely gotten hard, and leasing or waiting may beat buying.

The one universal truth: generic national averages are now nearly useless. The spread between the best and worst state economics has never been wider.

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Sources: IRS OBBBA FAQ (irs.gov), SEIA policy briefs, DSIRE incentive database, EIA Electric Power Monthly. This article is for information only — not tax advice. Consult a tax professional about your situation.