Solar Tax Credit Changes 2026: What Homeowners Need to Know

The federal solar tax credit took a surprising turn on January 1, 2026, forcing homeowners around the US to wonder if solar energy can even be financially sustainable for them anymore. The answer is yes, but the most celebrated 30 percent residential tax credit (Section 25D) expired on December 31, 2025.Solar is still a very good investment for the majority of Americans.— and federal tax credits are still available with other financing mechanisms.

In this post, we’ll break down exactly what changed, who it impacts, and how you may still be eligible for the solar tax credit in 2026 and further. Read on, whether you’re new to solar or simply just missed the 2025 cut-off.

What Changed With the Federal Solar Tax Credit in 2026?

With the passage of H.R. 1, the One Big Beautiful Bill, signed on July 4th, 2025, federal solar incentives were transformed. Here’s what you need to know:

Section 25D Ended for Homeowner-Owned Systems

The 30% federal solar Investment Tax Credit (ITC)which homeowners could take if they paid for solar systems in cash or through a loan, expired on Dec. 31, 2025. The credit, which has the official name ofSection 25D of the tax code— was a available till 2034 but not anymore since the changes.

For a homeowner to be eligible for the Section 25 D credit, they were required to have:incurred qualifying expenses(installation, equipment costs) by the end of 2025. Contracts that are installed in January 2026 or later do not count, even if the contract was executed at an earlier time.

Section 48E Continues Through 2027

While Section 25D is gone, Section 48EThe solar tax credit (commercial and third-party ownership, or TPO) will continue through December 31, 2027. Why is this significant? Because if you lease a solar system or enter into a power purchase agreement (PPA) rather than paying for the system upfront, you can still get the federal tax credit.

Section 48E was due to expire on December 31, 2032, but One Big Beautiful Bill brought the sunset date forward considerably.

Battery Storage Remains Eligible (Through 2032)

When used in standalone battery projects with a third-party owner, they still qualify for federal tax credits until 2032. After 2025, batteries owned by homeowners do not qualify under Section 25D.

Section 25D vs Section 48E: Understanding the Two Tax Credits

Understanding the confusion with solar tax credits is simple; it’s all because there are actually two different but similar solar tax incentives. Here’s what makes them different:

The key takeaway: You can’t claim the federal solar tax credit as a homeowner any moreHowever solar companies that do lease or PPA agreements can still qualify for section 48E and use those savings to further reduce customer monthly payment.

How Homeowners Can Still Benefit From Solar Tax Credits

Although you can’t receive the credits directly, you can still earn some throughthird-party ownership models. Here’s how they work:

Solar Leases

Solar Lease: A solar company owns a system on your roof and sells you electricity on an annual basis via a lease agreement. You pay a monthly rental fee (the average lease can range between $150–250 for a standard system). The lease company takes the Section 48E tax credit and passes the benefits of that credit back to you in the form of lower monthly rent.

Pros:

• No upfront expense (or negligible upfront expense depending on your provider)
• Fixed monthly payment (easier budgeting)
• Maintenance and repairs covered by solar company
• Benefit from federal tax credit indirectly

Cons:

• You don’t own the system (no home value increase)
• Long-term contracts (15-25 years)
• Possible escalator clause (we pay an extra each month once a year)
• Complications if you sell your home

Power Purchase Agreements (PPAs)

PPAs are a bit like a lease, except instead of a flat monthly rate, you pay a per-kilowatt-hour (kWh) price for the electricity your solar panels generate. That rate is usually less than your utility’s rate.

Example:So for each kWh of solar power your solar array produces, you save $0.04 ( $0.15 per kWh from your utility, compared to your PPA rate of $0.11 per kWh).

Industry data from early 2026 suggests that solar lease costs may actually decreasethan in 2025 even after a policy change. The first year lease rate for Solar PPA contracts averaged $22 per kW per month in 2025. That figure reduced to an average of $18 per kW per month in 2026 due to domestic content adders and favorable interest rates.

Should You Lease or Buy in 2026?

Without the Section 25D credit, the financial math has shifted:

• Leasingmakes sense if you want low upfront costs, no maintenance headaches, and you’re not planning to sell your home anytime soon.
• Buyingand loan) plan may still provide the best long-term savings in states with expensive electricity rates, generous net metering, and extra state rebates.

Run the math for your specific situation based on the incentives in your state, your utility rates, and how long you plan to live in your home.

New Domestic Content and FEOC Requirements (2026+)

Starting 2026, solar systems that wish to claim the Section 48E tax credit are required to comply with the rules around:domestic content and foreign entities of concern (FEOC):

Domestic Content Bonus Credit

To qualify for an additional 10% bonus crediton top of the base 30% ITC, solar projects must meet minimum U.S. manufacturing content thresholds:

• 2026: At least 40% of system cost from non-FEOC sources
• 2027: 45% required
• 2028: 50% required
• 2030: 60% required

These income limitations are for the bonus credit and not the 30% base Section 48 E credit. But many solar companies are restructuring their supply chains to accommodate these requirements.

FEOC Restrictions

Systems cannot include components from foreign entities of concern—mainly Chinese-owned, that the Department of Energy has recently put on a watch list. This has helped prompt the growth of solar production on U.S. soil by companies such as Tesla, Enphase, and Q Cells.

If you’re a homeowner, it might mean your solar company will present different equipment choices in 2026 than they did in 2025, though you should see similar warranties and equipment performance.

Is Solar Still Worth It Without the 30% Federal Tax Credit?

The short answer: Yes, for most U.S. homeowners. Here’s why:

Rising Electricity Costs Outweigh Lost Incentive

What drives solar financially isn’t tax credits — it’sutility electricity costs. US residential electricity rates are expected to increase by an average of5% annuallyIt is estimated to grow by 7% by 2030 which is way greater than the average of 3%.

This rate is hastened by needs for massive grid modernization. Deloitte estimated that the U.S. electric utility sector needed to$1.4 trillion in investmentThe investment for upgrading old infrastructure, renewable energy and electrification (EVs, heat pumps, etc.) between 2025 and 2030 will be $2.3 trillion, which means that energy consumers pay more through price increases.

By locking in a solar electricity rate (through either a lease or a loan payment) to be fixed or relatively predictable, you guard against such hikes. This amount can save you thousands over 20-25 years!

Payback Periods Are Still Competitive

While losing the 30% federal credit extends payback periods, the difference is manageable:

• California (with 25D, 2025): 7-year payback
• California (without 25D, 2026): 9-year payback
• Georgia/Tennessee (with 25D, 2025): 13-19 years
• Georgia/Tennessee (without 25D, 2026): 15-21 years

In areas where your electricity is expensive, you have generous net metering rules, and plenty of sun exposure (high solar irradiance), you’re going to see a good ROI.

Solar Increases Home Value

There’s even more data to support that homes with owned solar sell quicker and for more. According to a Zillow report, homes with solar sell for about4.1% moreto homes without solar panels, and the average added market price is $4,000 for every $10,000 of the initial price of the home. So, on a $400,000 home that could be an extra $16,400 added at time of sale.

The good news is, in the majority of states, solar installations are exempt from property tax assessments, so you won’t see a rise in your property taxes despite the rise in your home value.

State and Local Solar Incentives That Remain Available

Beyond Federal incentives, several states have comprehensive solar programs that make solar more affordable:

California

• 3CE Battery Rebates: $3,000-$13,000 (income-qualified)
• EV Charger Rebates (3CE): Up to $2,000
• SGIP (Self-Generation Incentive Program):PG & E and other utilities battery storage rebate program
• Net Metering 3.0 (NEM 3.0): Reduced but still available

New York

• NY-Sun Initiative: $150-$400 per kW rebate
• Megawatt Block incentives: Declining block structure
• Property tax exemption:Solar installations that are not subject to a property tax increase

Massachusetts

• SMART Program: Per-kWh incentive for 10-20 years
• SRECs (Solar Renewable Energy Credits): Tradeable credits based on production
• Property & sales tax exemptions

New Jersey

• TRECs (Transition Renewable Energy Credits): Successor to SRECs
• Sales tax exemption on solar equipment

Colorado, Arizona, Texas

Although, these states do not offer state-wide rebates, there are many utilities which doperformance-based incentivesor programs like net metering which dramatically increase the economics of solar.

Always check Database of State Incentives for Renewables & Efficiency (DSIRE) for the latest programs in your area.

Frequently Asked Questions

Can I still claim the 25D credit if I started my solar project in 2025?

Yes, for qualified expenses you paid by the end of 2025.and more! This is for any deposit, equipment installation, or other upfront installation costs. You’ll submit IRS Form 5695 with your 2025 tax return (which will be due in April 2026).

If you’re not putting in a system until 2026, however, we still advise speaking to a tax adviser, as some expenses might be calculated based on when they were incurred.

How long does the Section 48E tax credit last?

Section 48E remains available through December 31, 2027for solar leases and PPA agreements. (There is no federal tax incentive at present for residential solar at the federal level unless Congress changes the law.)

Are solar leases cheaper than buying in 2026?

Depends on how much money you have and your state’s incentives. Maybe in 2026 there will be acomparable or lowerwhich we see growing to $18/kW/month in 2028, compared with $22/kW/month in 2025, as a function of domestic content bonuses and interest rates.

But owning (even without the federal tax credit) usually makes the most sense in the long run if you have:

• Tax liability that’s large enough to benefit from state/local credits
• Access to low-interest financing
• High utility rates
• Plans to stay in your home 10+ years

When shopping for a solar system, make sure you get quotes from installers for both buying and leasing. Then, estimate the total 20-year cost for each.

What happens in 2028 after Section 48E ends?

There’s no current federal solar incentive scheduled after 2027. However:

• Continued (and likely expanded) state and local initiatives
• The prices of solar hardware are decreasing steadily (panels fall by ~ 10% year to year)
• Utility cost is increasing. Now, solar can save you money!
• Congress might pass new clean energy bills (uncertainty)

The analysts predict a dip in demand for 2028 before rebounding as consumers figure out that solar can still make sense even without the federal incentives, just like it did after the Australian national rebate expired.

Should I wait for new incentives or install solar now?

If you’re considering a lease or PPA, install before the end of 2027and get started now so you can take advantage of Section 48E while it still lasts. If you wait until 2027, your leases will likely be more expensive.

If you plan on purchasing up front: This comes down to the state’s incentive program’s schedule. Depending on your program (California’s SGIP, for example, reduces rebates as funds are depleted, so acting quickly could mean higher savings)

Generally, Your sweet spot will be the point where your electricity prices make solar financially worthwhile.But this comes at the expense of taking advantage of maximum incentives. In an interest rate environment, you’re often better off waiting because otherwise you lose out on more money.

Conclusion: Solar’s Long-Term Value Remains Strong

The expiration of the Section 25D federal solar tax credit represents a policy change, butBut it doesn’t change the core value proposition of solar.. Rising electricity costs, the urgency to upgrade the electrical grid, and government incentives/tax credits make solar one of the most wise long-term investments for US homeowners.

If you’re considering solar in 2026 or beyond:

1. Compare lease vs. purchase options based on your financial situation
2. Research state and local incentives that apply to your area
3. Factor in rising utility rates when calculating payback periods
4. Act before the end of 2027 if considering a lease/PPA to access Section 48E

So if you’re considering solar for your home, gather quotes from a few installers, talk to them about purchasing and leasing, and run the numbers with your local utility rates and state incentives. The federal policies have changed, but the math of solar independence still stacks up.