Solar Tax
Credit 2026: What Changed and What Remains

If you’re looking into the solar tax credit 2026
situation, you’ve probably already heard the bad news. The 30%
residential tax credit that made solar panels a no-brainer for millions
of homeowners? Gone. The One Big Beautiful Bill Act, signed on July 4,
2025, repealed Section 25D of the tax code. That single move changed the
math for anyone planning a home solar installation this year.

But here’s the thing. The federal solar incentive picture isn’t
completely dead. Commercial credits still exist, state programs are
stepping up, and third-party ownership models like leases and PPAs give
homeowners a workaround that most people don’t know about yet.

I’ve spent the last few months digging into what actually changed and
what options are still on the table. Let me walk you through all of
it.

Solar Tax Credit
2026: What’s Still Available?

Let’s start with the good news, because there is some.

The Section 48E commercial Investment Tax Credit is
still active. If you’re a business owner installing solar on commercial
property, you can still claim a tax credit of up to 30% on qualifying
installations. Projects that begin construction by July 4, 2026, remain
eligible for the full credit rate. They do need to be placed in service
by December 31, 2027, though, so the clock is ticking.

For homeowners, the picture looks different. You can’t claim a
residential tax credit directly anymore. But you can still benefit from
solar through third-party ownership (TPO) models. Solar
leases and power purchase agreements (PPAs) work because the leasing
company owns the system, claims the commercial ITC on their end, and
passes savings to you through lower monthly rates. It’s not as good as
getting 30% off your system cost, but it’s not nothing.

Here’s what’s still available in 2026:

• Commercial solar ITC (Section 48E) at 30% for projects starting
  construction by July 4, 2026
• State-level solar tax credits, rebates, and performance incentives
  in over 30 states
• Net metering programs in most states, letting you sell excess power
  back to the grid

So no, solar isn’t dead. The path to savings just looks a bit
different now.

What Changed After the IRA
Rollback

The Inflation Reduction Act of 2022 was supposed to keep the 30%
residential solar credit alive through 2032. There was a planned
step-down to 26% in 2033 and 22% in 2034. That whole timeline got thrown
out when Congress passed the One Big Beautiful Bill Act.

Here’s what the IRA solar tax credit repeal actually
means in practice.

The Section 25D residential clean energy credit
ended on December 31, 2025. No phase-down period. No gradual reduction.
If your system wasn’t installed and operational by that date, you missed
the window entirely. There’s no going back.

This didn’t just affect solar panels, either. The repeal also killed
the residential credit for standalone battery storage, small wind
turbines, geothermal heat pumps, and fuel cells. If you were counting on
a heat pump tax credit
in 2026, you’ll want to check what’s still available on that front
too, because the rules shifted there as well.

Section 25D
vs Section 48: Residential vs Commercial

This is where things get confusing for most people. I get questions
about this constantly, so let me break it down.

Section 25D was the residential credit. It let
individual homeowners claim 30% of their solar installation costs as a
personal tax credit on their income taxes. This is the one that’s
gone.

Section 48E (formerly Section 48) is the commercial
and utility-scale credit. It applies to businesses, nonprofits (through
direct pay), and commercial property owners. This one survived the OBBB,
but it came with new restrictions around foreign entity ownership and
tighter construction start deadlines.

The key difference? Section 48E requires that the entity claiming the
credit owns the system for commercial purposes. Homeowners can’t use it
directly. But through TPO arrangements, the economic benefits can still
flow down to residential customers. Think of it like a workaround, not a
replacement.

Federal Solar ITC Rates for
2026

Let me lay out the actual numbers so you know exactly where things
stand with the federal solar incentive 2026.

For commercial projects beginning construction by July 4, 2026:

• Base ITC rate: 6% of installed cost
• With prevailing wage and apprenticeship requirements met: 30% of
  installed cost
• Domestic content bonus: additional 10%
• Energy community bonus: additional 10%

That means a commercial solar project in an energy community using
American-made components and meeting labor requirements could
potentially claim up to 50% in tax credits. That’s a genuinely big deal
for businesses thinking about going solar.

For residential homeowners, the federal rate is straightforward: 0%.
There’s no section 25D tax credit available for systems
placed in service in 2026 or later. Full stop.

But before you give up on the idea, consider this. The average cost
of residential solar has dropped about 70% over the past decade. A
system that would have cost $40,000 in 2015 runs about $24,000 to
$28,000 today for an average 8 kW setup. Even without the federal
credit, the payback period in many states is still 6 to 9 years,
especially with electricity costs climbing the way they have been.

If you’re also considering an EV charger alongside your solar setup,
check out the current
EV charger installation costs to see if bundling makes financial
sense for your situation.

State Solar Incentives
That Fill the Gap

With the federal residential credit gone, state-level incentives
matter more than they ever have. And honestly? Some states are doing a
pretty solid job of picking up the slack.

States With the Best
Solar Incentives

Here are the standout states for solar incentives in 2026:

New York offers a state tax credit of up to 25%
(capped at $5,000) plus NY-Sun rebates that can knock $2,000 to $4,000
off your system cost. Between the state credit and the rebates, New York
homeowners can still offset a meaningful chunk of their install.

Massachusetts runs the SMART program, which provides
performance-based incentives. They pay you per kilowatt-hour your system
produces over 10 years. It’s a different model than a tax credit, but
the money adds up.

California made waves with the NEM 3.0 changes that
reduced net metering value, but the Self-Generation Incentive Program
(SGIP) still offers solid battery storage rebates. If you’re pairing
solar with a battery, California is still worth considering.

Illinois has the Shines Solar program with renewable
energy credits worth $4,000 to $8,000 depending on system size. That’s
real money.

Maryland provides a state tax credit of up to $1,000
plus separate county-level incentives in many areas. Not the biggest
number on its own, but it stacks with other savings.

Beyond tax credits, many utilities run their own rebate programs.
Check with your local utility before assuming you have no options. From
what I’ve seen, utility rebates combined with state credits can cover
20% to 30% of system costs in the right markets. That partially makes up
for the lost federal credit.

For homeowners comparing heating and cooling options alongside solar,
understanding the differences
between heat pumps and furnaces can help you plan a full home energy
upgrade that actually makes sense together.

How to Claim Your Solar Tax
Credit

If you’re a business owner or you installed a residential system
before the 2025 deadline, here’s what you need to know about actually
getting your money.

For residential systems installed before December 31, 2025, file IRS
Form 5695 with your federal tax return. The credit applies to the tax
year when your system was “placed in service,” meaning it was fully
installed and generating electricity. You can carry forward unused
credits to future tax years if your tax liability was too low to use the
full amount in one year.

For commercial systems claiming the Section 48E ITC, the process
involves IRS Form 3468. You’ll need documentation showing:

• The date construction began (to prove you met the July 4, 2026
  deadline)
• Total qualifying costs including equipment, labor, and
  permitting
• Compliance with prevailing wage and apprenticeship requirements if
  you’re claiming the 30% rate

Common Mistakes When Filing

I’ve seen a few mistakes come up over and over, and they can cost you
thousands of dollars.

Missing the “placed in service” requirement. For the
old 25D credit, your system had to be fully operational by December 31,
2025. Starting construction wasn’t enough. If your installer didn’t
finish in time, you’re out of luck. I’ve heard from homeowners who
started in October 2025 and didn’t get their system turned on until
January. That’s a $7,000+ mistake.

Confusing the base rate with the bonus rate. The
commercial ITC base rate is only 6%. To get the full 30%, you need to
meet prevailing wage and apprenticeship requirements. Many small
business owners assume they automatically get 30% and get hit with a
much smaller credit than expected. Read the fine print.

Not carrying forward unused credits. If your tax
bill was lower than your credit amount, you don’t lose the difference.
You can carry it forward for up to five years (residential) or carry it
back three years and forward 22 years (commercial under IRC 39). Don’t
leave money on the table.

Forgetting state credits are separate. Your state
tax credit is filed on your state return, not your federal return. These
are two different filings. I’ve talked to homeowners who missed out on
state credits simply because they thought the federal filing covered
everything. It doesn’t.

Key Takeaways

The solar tax credit 2026 picture has changed
dramatically, but solar still makes financial sense for many homeowners
and businesses. Here’s what you need to remember.

The residential Section 25D credit is gone. No phase-down, no
extension. If you didn’t install by the end of 2025, that window is
closed. But commercial credits under Section 48E remain available, and
TPO models let homeowners benefit indirectly through leases and
PPAs.

State incentives are filling part of the gap. New York,
Massachusetts, Illinois, and several other states offer credits,
rebates, and performance incentives that can take a real bite out of
your costs.

If you’re a business owner, act fast. The July 4, 2026 construction
start deadline for the full commercial ITC is coming up quick. Get your
project moving before that window closes too.

Solar panel prices have dropped enough that even without the federal
credit, the math still works in most markets. Get quotes from multiple
installers, check your state and utility incentives, and run the numbers
for your specific situation. The savings are still there. You just have
to know where to look.