Federal Solar Tax Credit 2026: The 25D Credit Has Expired — What Solar Incentives Remain
Federal Solar Tax Credit 2026: The 25D Credit Has Expired — What Solar Incentives Remain
For the past several years, the federal solar Investment Tax Credit (ITC) — formally Section 25D of the Internal Revenue Code — let homeowners deduct 30% of their solar installation cost from their federal taxes with no dollar cap. That credit no longer exists for new solar installations in 2026 or beyond. This page explains exactly what expired, the law that ended it, and what solar incentives genuinely remain available to you.
What Expired: Section 25D at 30%
The Section 25D Residential Clean Energy Credit allowed homeowners who purchased and installed qualifying solar photovoltaic systems to claim a credit equal to 30% of total system costs, including:
- Solar panels and modules
- Inverters, mounting hardware, and wiring
- Labor and permitting costs
- Battery storage systems (added under the Inflation Reduction Act of 2022)
- Solar water heaters meeting IRS requirements
There was no income limit and no dollar cap. A $30,000 system generated a $9,000 federal credit that could reduce your tax bill to zero and carry forward indefinitely if unused. That credit is now gone for new installations.
The Law That Ended It: The One Big Beautiful Bill Act
The One Big Beautiful Bill Act (OBBBA), P.L. 119-21, signed into law on July 4, 2025, eliminated Section 25D for systems placed in service after December 31, 2025. The same bill also eliminated the Section 25C Energy Efficient Home Improvement Credit (which covered heat pumps, insulation, windows, and heat pump water heaters) on the same date.
This reversed the trajectory set by the Inflation Reduction Act of 2022, which had extended and expanded both credits through 2032. The OBBBA accelerated the phase-out to the end of 2025 — two days after it was signed, the IRA's solar and efficiency credit provisions were effectively nullified for 2026 forward.
What About Systems Installed in 2025 or Earlier?
If your solar system was installed and placed in service (fully operational and connected to the grid) by December 31, 2025, you can still claim the full 30% Section 25D credit on your 2025 federal tax return. The credit applies to the tax year in which the system was placed in service — not when you file.
To claim for a 2025 installation:
- File IRS Form 5695 (Residential Energy Credits), Part I, with your 2025 federal tax return
- Transfer the credit to Schedule 3, Line 5 of your Form 1040
- Keep your final itemized invoice, proof of payment, and installer completion certificate
- Any unused credit carries forward to 2026 and future years
The key date is placed in service — not when you signed a contract, made a down payment, or had panels installed on the roof. The system must have been fully operational (inspected, interconnected, producing power) by December 31, 2025.
What Solar Incentives Remain in 2026?
The end of the federal ITC does not make solar economically worthless — several meaningful incentives and financial structures still exist at the state and utility level.
State Solar Tax Credits and Rebates
A number of states maintain their own solar incentive programs independent of federal policy:
- New York (NY-Sun): The NY-Sun Incentive Program provides upfront rebates administered through utilities and NYSERDA, with additional support for low-to-moderate income households. New York also has a 25% state solar tax credit (capped at $5,000).
- Colorado: Xcel Energy and other Colorado utilities offer solar rebates. Colorado also has a state income tax credit for solar installations.
- California: No state-level solar tax credit, but California's Self-Generation Incentive Program (SGIP) offers battery storage rebates up to hundreds of dollars per kWh — significant for solar-plus-storage systems.
- Massachusetts: SMART (Solar Massachusetts Renewable Target) provides a production-based incentive paid per kilowatt-hour generated over 10 years. Combined with SREC II income, Massachusetts remains one of the strongest solar markets without the federal ITC.
SREC Markets: Solar Renewable Energy Certificates
In states with active SREC (Solar Renewable Energy Certificate) markets, your solar system generates certificates — one per megawatt-hour of electricity produced — that utilities are required to purchase. SREC revenue can meaningfully offset system costs over time:
- New Jersey: Active SREC market; TREC (Transition Renewable Energy Certificate) program ongoing. NJ solar has historically generated $200–$400 per SREC.
- Massachusetts: SREC II program still active for systems registered before the transition to SMART.
- Maryland: SREC market active; prices vary with state RPS compliance requirements.
- Pennsylvania and Washington DC: Both maintain SREC markets with varying price levels.
Net Metering: Still Available
Net metering is not affected by the OBBBA. Net metering is a state utility commission policy — it requires utilities to credit solar owners for excess electricity exported to the grid. It was never a federal tax provision, so the federal legislative changes have no effect on it.
Net metering policies vary significantly by state and utility:
- California (NEM 3.0): California's updated net metering policy (effective April 2023 for new applications) significantly reduced export credits compared to NEM 2.0. Export rates are now based on "avoided cost" rather than retail rates, which lengthens solar payback periods. Battery storage paired with solar has become more economically important under NEM 3.0.
- Most other states maintain traditional net metering at or near retail rates, though policies continue to evolve at state PUC level.
Solar + Battery Storage: Economics Without the Credit
In high-electricity-cost states — Hawaii, California, Massachusetts, Connecticut, New York — solar plus battery storage can still deliver strong financial returns without the federal ITC, due to:
- High avoided utility rates (offsetting electricity at $0.20–$0.35/kWh or more)
- Time-of-use rate arbitrage (charging batteries at low-cost hours, discharging during peak pricing)
- Backup power value (grid outage resilience, especially in wildfire and storm-prone areas)
- State battery rebates (California SGIP, New York Con Edison battery incentives)
The payback period is longer without the 30% federal credit, but the underlying economics of solar remain valid where electricity prices are high and sunshine is reliable.
Community Solar Programs
Community solar allows households — including renters and those with unsuitable rooftops — to subscribe to a share of a local solar farm and receive bill credits for their portion of electricity generated. Community solar is typically structured as a subscription, not a purchase, so no tax credit is needed:
- Subscribers typically save 5–15% on their portion of the electricity bill
- No installation, no ownership, no maintenance responsibility
- Income-qualified programs in states like New York, Illinois, and Minnesota offer deeper discounts
- Programs exist in over 20 states; availability depends on your utility territory
Community solar remains completely unaffected by the expiration of Section 25D, since subscribers never owned the solar system to begin with.
Comparing the Solar Incentive Landscape: Before and After 2026
| Incentive | Status in 2026 | Notes |
|---|---|---|
| Section 25D federal ITC (30%) | Expired | Eliminated by OBBBA for systems placed in service after Dec 31, 2025 |
| Section 25C (heat pumps, insulation) | Expired | Also eliminated by OBBBA on same date |
| Net metering | Active (state-level) | Not affected by federal legislation; varies by state/utility |
| State solar tax credits | Varies by state | NY, CO, and others maintain state-level credits |
| SREC markets | Active (select states) | NJ, MA, MD, PA, DC markets still operating |
| California SGIP battery rebate | Active | Battery storage rebate, income-qualified tiers |
| NY-Sun program | Active | Upfront rebates + NY 25% state tax credit (cap $5,000) |
| Community solar subscriptions | Active | Available in 20+ states; no ownership required |
Should You Still Go Solar in 2026?
The answer depends heavily on your state and electricity costs. The 30% federal credit was worth, on average, $6,000–$9,000 on a typical residential system — a significant subsidy. Without it, the financial calculus shifts:
- High-cost electricity states: Solar still pays off over 8–12 years in many cases
- Low-cost electricity states: The numbers are harder without the federal credit; a careful analysis is essential
- Battery storage: Adding batteries extends payback but adds resilience value; state rebates help
- SREC states: Ongoing certificate income remains a real financial benefit
Use our Energy Rebate Estimator to model your specific situation with current state incentives. Also see our full guide: Solar Tax Credits and Incentives 2026 and Energy Rebates 2026 Guide.