Is Solar Worth It in 2026 Without the Federal Tax Credit?
The 30% federal solar tax credit (Section 25D) expired December 31, 2025. Here's what homeowners need to know about solar economics in 2026 — and when it still makes financial sense.
The $7,200 Question: Where Did It Go?
For the past decade, the federal Investment Tax Credit (ITC) under Section 25D of the tax code was the single most powerful driver of residential solar adoption in the United States. At 30% of total system cost, a homeowner installing a $24,000 solar array could claim a $7,200 credit against their federal income tax — effectively cutting the out-of-pocket cost to $16,800 overnight.
That credit expired for homeowners on December 31, 2025.
If you're researching solar in 2026, this is the first thing you need to understand: the rules changed significantly on January 1, 2026, and the financial case for solar looks meaningfully different than it did 13 months ago. Not impossible — but different, and more location-dependent than ever.
This article breaks down exactly what expired, what didn't, and the honest analysis of when solar still makes financial sense without the federal credit.
A Brief History of the Solar ITC
The Investment Tax Credit for solar was first established in 2006 under the Energy Policy Act, at an initial 30% rate. After multiple extensions and step-downs, the Inflation Reduction Act of 2022 restored the rate to 30% and extended it through December 31, 2032 — or so most people assumed.
What many homeowners and installers failed to notice was a critical distinction buried in the legislation: the Inflation Reduction Act's extended 30% credit applied under Section 48E, which is the commercial clean energy credit. The residential homeowner credit — Section 25D — had a separate, less generous timeline that terminated for homeowners at the end of 2025.
The distinction matters enormously:
- Section 25D (Residential): 30% credit through Dec 31, 2025. Now expired for homeowners who purchase and own their systems.
- Section 48E (Commercial/Business): 30% credit through Dec 31, 2032 (with phasedowns starting 2034). Still active for businesses and, importantly, for third-party solar ownership arrangements.
What This Means for Homeowners in 2026
If you purchase and own a solar system outright or through a solar loan in 2026, you will not receive a federal tax credit. The 30% credit that made so many solar purchase decisions obvious is simply no longer there for homeowners.
This effectively increases the cost of system ownership by approximately 30% for tax-owing homeowners compared to 2025. A $24,000 system that effectively cost $16,800 after the credit in 2025 now costs the full $24,000 in 2026.
The payback period extends accordingly. In a state like Massachusetts with average electricity rates near 25¢/kWh, a 7-year payback in 2025 might now be a 9-10 year payback in 2026. Still financially attractive over a 25-year panel life, but materially different.
🔴 Critical Update for 2026
The federal residential solar tax credit (Section 25D) expired December 31, 2025. Homeowners who purchase solar in 2026 cannot claim the 30% federal credit. This increases effective system costs by roughly 43% compared to 2025 (since $24,000 - $7,200 = $16,800 in 2025 vs. $24,000 in 2026).
Third-Party Ownership: The Lease and PPA Loophole
Here's where things get nuanced — and where some homeowners can still access federal incentives, indirectly.
Solar leases and Power Purchase Agreements (PPAs) work differently from purchased systems. In these arrangements, a solar company owns the panels on your roof. You either pay a fixed monthly lease payment or you buy the electricity the panels produce at a predetermined rate (the PPA). Because the solar company is the owner, it can claim the commercial credit under Section 48E — and pass some of those savings to you through lower rates.
This means:
- Solar leases in 2026: The installer may price their lease payments lower than they would without a tax incentive, because they're still capturing the 30% commercial credit.
- PPAs in 2026: Similarly, PPA rates per kWh may be priced attractively because the developer captures the 48E credit.
The catch? You don't own the panels. You can't claim the Residential Clean Energy Credit. You also can't sell the panels separately, and transferring the lease when you sell your home can complicate real estate transactions. But for homeowners who want solar's benefits without the upfront capital outlay or the complexity of ownership, third-party arrangements remain financially compelling in 2026.
ℹ️ Section 48E Through 2027
Third-party solar ownership companies (lease/PPA providers) can claim the Section 48E commercial credit at 30% through December 31, 2032, with phasedown starting in 2034. This credit is available because the solar company, not the homeowner, is the system owner. Homeowners benefit indirectly through competitive lease/PPA pricing.
State Incentives That Still Exist
The expiration of the federal credit doesn't mean solar incentives are gone entirely. A significant patchwork of state-level programs remains — and in some states, these are substantial enough to meaningfully offset the loss of the federal credit.
Strong state programs that remain active as of 2026:
Massachusetts: The SMART (Solar Massachusetts Renewable Target) program provides a per-kWh incentive for solar production for 10 years. Combined with the MA residential tax credit of 15% (capped at $1,000), solar in Massachusetts remains highly attractive. Average residential payback: 7-9 years.
New York: The NY-Sun Megawatt Block program offers upfront incentives ranging from $0.20-$0.40/Watt depending on county. The NY state tax credit of 25% (capped at $5,000) remains in effect. NY-Sun has remaining block capacity through at least 2026. Average residential payback: 8-10 years.
New Jersey: The Transition Renewable Energy Certificate (TREC) program pays $90/MWh for solar production for 15 years. NJ also has favorable net metering. Average residential payback: 6-8 years.
California: While California has moved to Net Billing Tariff (NBT) replacing NEM 2.0, the state's self-generation incentive program (SGIP) provides rebates for battery storage. With electricity rates averaging 30¢/kWh and above, California solar economics remain strong even without the federal credit.
Illinois: The Illinois Adjustable Block Program (ABP) provides per-kWh incentive payments for Renewable Energy Credits (RECs). Round 6 remains open as of early 2026.
Maryland, Connecticut, Rhode Island, Vermont, and Minnesota all maintain meaningful state-level solar programs that partially substitute for the expired federal credit.
For a complete and current list of state incentives, the Database of State Incentives for Renewables & Efficiency (DSIRE at dsireusa.org) is the authoritative source.
Net Metering: The Hidden Value Driver
One often-overlooked element of solar economics is net metering — the policy that allows homeowners to sell excess solar electricity back to the grid at a credit equal to the retail electricity rate.
Net metering remains in place in most states, though California, Arizona, and Nevada have moved to less favorable compensation structures. In the 38+ states with full retail net metering, excess solar production during the day offsets electricity consumption at night, dramatically improving solar's financial return.
In a state like Massachusetts with 25¢/kWh rates and full retail net metering, every kWh of solar production is worth 25¢. A 7 kW system producing 8,400 kWh/year generates $2,100 in annual electricity value — and that's the number that drives your payback calculation, not the purchase price alone.
When Solar Still Makes Financial Sense in 2026
Despite the loss of the federal credit, solar remains financially attractive in specific circumstances. The key variables are electricity rate, available state incentives, and how long you plan to own your home.
High electricity rates are the strongest driver. States with rates above 22¢/kWh — including Hawaii (39.9¢), California (30¢+), Connecticut (27¢), Massachusetts (25¢), New Hampshire (25¢), and Rhode Island (24¢) — provide the fastest solar payback even without federal incentives. At 30¢/kWh, a 7 kW system producing 8,400 kWh/year generates $2,520 in annual electricity savings. Even without a tax credit, that system pays back in 8-9 years and generates $40,000+ in net savings over 25 years.
Long-term homeowners benefit most. Solar's economics improve dramatically over time as panels continue producing and electricity rates continue rising (historically 2-4% annually). A homeowner planning to stay 20+ years will see dramatically better returns than one planning to move in 5 years. If you're uncertain about your tenure in your home, a lease or PPA may be more appropriate than purchasing.
States with strong state incentives tip the balance. In Massachusetts or New York, the combination of a 15-25% state tax credit, per-kWh production incentives, and high electricity rates means that solar's economics in these states in 2026 are often better than solar economics were in a moderate-rate state in 2024 with the federal credit.
💡 The Break-Even Framework
To evaluate solar without the federal credit, ask: (Annual electricity savings) ÷ (System cost after state incentives) = Years to payback. Under 10 years is generally excellent. Under 8 years is outstanding. Over 15 years requires careful analysis of your specific situation.
Running the Numbers: Three State Examples
Hawaii ($45,000 system, 39.9¢/kWh, no state credit): Annual savings: $3,990 (10,000 kWh × $0.399). Payback: 11.3 years. 25-year net profit: $54,750. Solar makes clear financial sense despite no federal or state credit, purely due to extreme electricity rates.
Massachusetts ($24,000 system, 25.2¢/kWh, 15% state credit capped at $1,000): After state credit: $23,000. Annual savings: $1,764 (7,000 kWh × $0.252). Payback: 13 years. 25-year net profit: $21,100. Solid but longer than 2025. Adding SMART program income shortens payback to 9-10 years.
Texas ($22,000 system, 13.7¢/kWh, no state credit): Annual savings: $959 (7,000 kWh × $0.137). Payback: 23 years. With historically volatile Texas electricity prices, solar provides some rate hedge — but the financial case is weak without incentives at low current rates.
The pattern is clear: solar in 2026 is a strong investment in high-rate states with available state incentives, and a marginal or poor investment in low-rate states with no state support.
Should You Wait or Act Now?
A common question is whether Congress will restore the residential credit. As of early 2026, there is no legislation pending that would restore Section 25D for homeowners. The current political environment makes restoration unlikely in the near term. Waiting for a federal credit that may not return while electricity rates continue rising is generally not a sound strategy in high-rate states.
For homeowners in high-rate states with available state incentives, the financial case for solar remains strong in 2026 — just with a longer payback than 2025. For homeowners in low-rate states without state programs, it's worth being realistic: the economics may not pencil out until battery storage costs fall further or electricity rates rise significantly.
The best move in any scenario is to model your specific numbers with accurate local data.
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Use Calculator →The Bottom Line
The expiration of the residential ITC is a genuine setback for solar adoption, particularly in moderate-rate states. But for the millions of homeowners in high-rate states — California, Hawaii, the entire Northeast corridor, Connecticut, Massachusetts, New York, New Jersey, and Rhode Island — solar remains one of the best investments a homeowner can make.
The federal credit's absence shifts the decision from "obvious yes" in most states to "it depends on your specific situation." Use our Solar ROI Calculator to model your numbers with 2026 data, and check your state's DSIRE page for current incentive availability.
Solar is a 25-year investment. The economics need to work for your home, your rate, your state — not the national average from a year that's already passed.
About the Author
Sarah Chen
Renewable Energy Policy Analyst
Sarah has over a decade of experience analyzing residential solar markets, energy policy, and clean energy incentives. She holds an M.S. in Energy Policy from Johns Hopkins University and has advised state energy offices across the Northeast.