Is Solar Worth It in 2026 Without the Federal Tax Credit?

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.

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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.

Federal law treats the residential credit under Section 25D separately from the business investment credit under Section 48E. Section 25D is not available for expenditures after December 31, 2025. Section 48E is not a substitute consumer credit and has its own eligibility restrictions.

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 (Business): Base and increased credit rates depend on statutory requirements. Current rules add project-timing and prohibited-foreign-entity restrictions and deny the credit for certain residential solar leasing arrangements.

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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. (Actual pricing varies significantly by market — see our state-by-state solar panel cost breakdown.)

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.

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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 buy the electricity at a contract rate. Ownership alone does not prove that the project qualifies for Section 48E.

This means:

• Solar leases in 2026: Compare the full payment schedule, escalator, transfer, buyout, and maintenance terms.
• PPAs in 2026: Compare the contract energy price and escalation with your utility tariff and export rules.

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. We run the full 25-year numbers on all three paths in our solar lease vs. PPA vs. buying comparison.

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State Incentives That Still Exist

The expiration of the federal credit doesn't mean solar incentives are gone. A patchwork of state and utility programs remains; these are the ones we confirmed with the administering agency in October 2026:

• Massachusetts: SMART 3.0 pays $0.03/kWh for 20 years for small residential systems qualifying in 2026 ($0.06/kWh for low-income households), plus a 15% state income tax credit capped at $1,000.
• New York: A 25% state income tax credit capped at $5,000. NY-Sun incentives vary by region and program block.
• New Jersey: The Administratively Determined Incentive pays a fixed $90 per SREC-II (one per MWh) for 15 years for net-metered residential systems.
• Illinois: Illinois Shines pays $70.37–$80.77 per REC for systems up to 10 kW in 2026-27, plus a $20 adder for customer-owned systems that do not receive a federal tax credit.
• Oregon: Energy Trust of Oregon offers $3,500 per home for PGE customers and $2,500 for Pacific Power customers in 2026.
• Maryland: The Maryland Energy Administration's FY27 Maryland Solar Access Program offers $750 per kW-DC, up to $7,500, for eligible applicants while funds last.
• Minnesota: Xcel Energy's Solar*Rewards pays $0.03/kWh for 10 years for 2026 residential enrollments.
• Colorado: A state income tax credit of 10% of a home battery's purchase price, extended through 2029.
• California: SGIP battery rebates are now limited to income-qualified PG&E and SCE customers installing storage with solar.

For other states, the Database of State Incentives for Renewables & Efficiency (DSIRE at dsireusa.org) is a good starting point; confirm amounts with the program administrator.

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Net Metering: The Hidden Value Driver

Net metering lets solar owners credit excess production against later usage. How that credit is valued now matters as much as any incentive.

Many states still credit solar at or near the retail rate up to your own use, including New York, Massachusetts, New Jersey, Maryland, Pennsylvania, Colorado, and Florida. Others credit exports below retail: California, Arizona, Nevada, Michigan, Illinois (for customers connecting since 2025), Georgia Power, New Hampshire, Vermont, and Hawaii. Our net metering guide lists the rule and source for each.

In Massachusetts, at about 29.6¢/kWh, a 7 kW system producing roughly 8,400 kWh a year offsets about $2,480 of electricity if all of it is credited near retail. That figure, not the purchase price alone, drives the payback.

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When Solar Still Makes Financial Sense in 2026

Despite the loss of the federal credit, solar remains attractive in specific circumstances. The key variables are your electricity rate, how your exports are credited, your installed price, and how long you plan to own your home.

High electricity rates are the strongest driver, if exports are credited fairly. The highest average residential rates in EIA's June 2026 data are in Hawaii (52.7¢), California (34.7¢), Massachusetts, Maine, and New York (about 29.5¢), and Rhode Island (29.2¢). At 30¢/kWh, a 7 kW system producing 8,400 kWh a year saves about $2,520 if every kWh offsets retail; at LBNL's $3.98/W national median price ($27,900), that is a simple payback of about 11 years. In Hawaii and California, though, exports earn far less than retail, so the real payback depends on how much you use on-site.

Long-term homeowners benefit most. Panels keep producing for decades, so a homeowner planning to stay 20 or more years will see much better returns than one planning to move in 5 years. If you're uncertain about your tenure, a lease or PPA may be more appropriate than purchasing.

State incentives tip the balance. New York's 25% credit, New Jersey's SREC-IIs, and Illinois Shines REC payments can each take years off a payback.

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Running the Numbers: Three State Examples

These come from our state planning model: an 8 kW system at LBNL's 2024 installed-price medians, EIA June 2026 rates rising 2.5% a year, and no federal credit.

New York ($32,800 at $4.10/W, 29.5¢/kWh): The 25% state credit cuts the net cost to $27,800. First-year savings are about $2,890, for a simple payback of about 9.6 years and about $64,700 in 25-year net savings. The monthly Customer Benefit Contribution charge for newer systems is not included.

Massachusetts ($27,300 at $3.41/W, 29.6¢/kWh): First-year savings are about $2,840, for a simple payback of about 9.6 years and about $63,400 in 25-year net savings before the $1,000 state credit or SMART 3.0 payments (roughly $290 a year at $0.03/kWh).

California ($31,900 at $3.99/W, 34.7¢/kWh): Despite the highest rate of the three, net billing credits exports at about 4¢/kWh. With about 35% of production used on-site, first-year savings are about $2,010, for a simple payback of about 15.9 years and about $32,500 in 25-year net savings.

The pattern: solar in 2026 is strongest where rates are high and solar is still credited at retail, and where state incentives fill some of the gap left by the federal credit.

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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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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.