The 30% federal solar tax credit that's referenced in virtually every solar guide on the internet is no longer available to homeowners who buy their own systems. It was terminated for new residential installations effective December 31, 2025, by the One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025. The credit still exists in modified form for third-party-owned systems (leases and PPAs), through deadlines that themselves narrow over the next few years. This guide is the honest, up-to-date version of what the federal solar tax credit is, what changed, what still applies, and what it means for solar economics in 2026 and beyond.
The bottom line, in one paragraph
The Section 25D Residential Clean Energy Credit (the 30% credit on customer-owned systems) ended for installations placed in service after December 31, 2025. The Section 48E Clean Electricity Investment Credit (the 30% credit on third-party-owned systems including residential leases and PPAs) remains available, but only through a narrowing window: projects beginning construction by July 4, 2026 must be placed in service by December 31, 2030; projects starting construction after that date must be placed in service by December 31, 2027 (26 USC §25D, Cornell Legal Information Institute; SEIA OBBBA analysis). New foreign-entity-of-concern (FEOC) restrictions on equipment sourcing also apply to projects starting in 2026 onward. Anyone reading this should consult a qualified tax advisor about their specific situation; the rules are fresh, the IRS interpretive guidance is still emerging, and the details below are for general orientation only.
A brief history of the federal solar tax credit
The federal Investment Tax Credit (ITC) for solar was first established in 2005 under the Energy Policy Act of that year, at 30% of system cost. The credit was scheduled to expire several times over its history and was extended each time by Congress, including extensions signed by both Democratic and Republican administrations. Trump signed an extension at the end of his first term during the COVID period.
The Inflation Reduction Act (IRA) of 2022 was the high-water mark for the residential credit. It bumped the credit from its 2022 level of 26% back up to 30%, extended the 30% rate through 2032, added a step-down to 26% in 2033 and 22% in 2034, and added energy storage (batteries) as an eligible expense for the first time. Under the IRA timeline, the residential credit would have phased out completely in 2035.
The One Big Beautiful Bill Act, signed into law July 4, 2025, dramatically accelerated the termination. The residential credit under Section 25D ended December 31, 2025 with no step-down. The commercial credit under Section 48E remains but is subject to new sunset provisions and equipment-sourcing rules.
Section 25D vs. Section 48E: the two paths and how they differ now
The federal solar tax credit isn't a single thing in the tax code. It's two related provisions that apply to different ownership structures:
| Tax code section | Who claims it | Status after OBBBA | Key deadlines |
|---|---|---|---|
| Section 25D (Residential Clean Energy Credit) | The homeowner who owns the system (cash or loan) | Terminated for systems placed in service after Dec 31, 2025 | Must be placed in service on or before Dec 31, 2025 |
| Section 48E (Clean Electricity Investment Credit) | The third party that owns the system (leasing company, PPA provider, commercial owner) | Still 30%, but tightening sunset rules | Begin construction by July 4, 2026 → in service by Dec 31, 2030. After July 4, 2026 → in service by Dec 31, 2027 |
The structural consequence: in 2026 and beyond, a homeowner who pays cash or takes a loan to buy solar gets no federal tax credit. A homeowner who signs a solar lease or PPA effectively gets the tax credit indirectly, because the leasing company captures the 30% Section 48E credit and (in theory) prices the lease lower as a result.
This is a meaningful shift in the financing math. Before OBBBA, the strong consensus was that owning (cash or loan) was almost always better than leasing because the homeowner captured the federal tax credit themselves. After OBBBA, that calculus changes in 2026 onward: ownership still has other advantages (no escalator, asset value at home sale, full long-term savings), but the tax-credit gap that used to make leases unambiguously worse no longer exists for the homeowner.
If you installed in 2024 or 2025
Homeowners who installed and placed their systems in service before the December 31, 2025 cutoff retain full eligibility for the Section 25D credit. OBBBA is not retroactive. Some specifics:
"Placed in service" matters more than purchase date. The credit applies to the year the system is placed in service, generally meaning permission to operate (PTO) has been granted by your utility and the system is generating electricity. A system contracted for and partially installed in 2025 but PTO'd in January 2026 would not qualify under Section 25D. This is why so many installers pushed hard to complete late-2025 projects by year-end.
Form 5695 still applies for 2024 and 2025 installations. The IRS form for claiming the residential credit hasn't changed. You claim it on your federal tax return for the year the system was placed in service. If your credit exceeds your tax liability for that year, the excess generally carries forward to subsequent years (consult a qualified tax advisor for your specific situation).
Battery storage installed before the cutoff still qualifies. The IRA expanded Section 25D to include qualifying battery storage. Batteries placed in service before the residential cutoff (December 31, 2025) continue to qualify for the 30% credit under the existing rules.
How Section 48E works for homeowners going solar in 2026+
Section 48E is technically a commercial tax credit, but it pass through to residential homeowners via third-party ownership (TPO) financing structures. The mechanics:
- You sign a solar lease or Power Purchase Agreement (PPA) with a third-party solar company.
- The third party owns the solar system installed on your roof.
- The third party claims the 30% Section 48E tax credit on the system's cost.
- The third party prices your lease payments or PPA rate lower (in theory) than they would absent the credit.
- You pay the third party monthly, presumably with a small discount versus what you would have paid the utility.
Several things in that flow deserve close attention. First, the credit value flowing through to you depends entirely on how the lease or PPA is priced. There's no requirement that the leasing company pass through 30%; they can capture more or less of the credit value depending on competitive pressure. Compare quotes from multiple TPO providers and ask each for the cash-equivalent price of the system.
Second, the 48E deadlines tighten substantially over the next few years. Projects whose construction starts by July 4, 2026 have until December 31, 2030 to be placed in service. Projects starting construction after that date must be placed in service by December 31, 2027. After 2027, the credit gets very hard to access for new residential leases and PPAs (Journal of Accountancy, February 2026).
Third, OBBBA introduced new Foreign Entity of Concern (FEOC) restrictions on equipment used in Section 48E projects. Starting in 2026, projects must source a minimum percentage of equipment value from non-FEOC suppliers (40% for projects starting in 2026, rising to 60% by 2030 for solar; 55% to 75% for storage). This affects which panels and inverters are eligible.
State incentives become proportionally more valuable
Here's the original-angle observation that's under-discussed in most coverage of OBBBA: state-level solar incentives didn't change at all. The federal credit going away makes the state credits that still exist proportionally more important to solar economics. States with meaningful continuing solar incentives include:
- New York: NY-Sun program plus state tax credit up to $5,000 (25% of system cost).
- Arizona: Residential Solar Energy Credit, 25% of system cost up to $1,000.
- South Carolina: 25% state tax credit up to $35,000.
- Massachusetts: SMART program plus state credit up to $1,000.
- SREC markets (NJ, MD, DC, IL, PA): Solar Renewable Energy Certificate programs that pay homeowners for solar production, sometimes worth thousands of dollars per year.
- Property tax exemptions: Most solar-friendly states exempt the added home value from a solar system from property tax assessment.
- Sales tax exemptions: Many states exempt solar equipment from state sales tax, saving 4–8% on equipment costs.
For a homeowner in a state like New York or South Carolina with strong state-level incentives, the federal credit loss is meaningful but not catastrophic. For a homeowner in a state with no state-level solar incentives (which describes much of the South and Midwest), the federal change makes the math substantially worse.
Is solar still worth it without the federal credit?
The honest answer: it depends on your state, your electricity rate, and your time horizon, and the math is meaningfully worse than it was in 2024 or 2025.
A representative example. Take a $20,000 system in a state with full 1:1 net metering and electricity rates around 14 cents per kilowatt-hour. With the 30% federal credit, the system's net cost was about $14,000, and annual electricity savings of roughly $1,400 produced a 10-year payback. Without the federal credit, the same system has a $20,000 net cost and a 14-year payback at the same savings rate. Still positive over the 25-year system lifetime (the system continues producing for 10+ years past payback), but the present-value math is meaningfully worse.
The cases where solar still clearly works in 2026 onward:
- High-electricity-rate states (CA, MA, NY, HI, CT) where annual savings are larger.
- States with continuing strong state-level incentives (NY, SC, NJ via SREC, MA via SMART).
- Homeowners planning to stay in their homes 10+ years.
- Cash purchasers who aren't financing interest and have no better use for the capital.
- Homeowners who can use a Section 48E-eligible lease or PPA with a clearly priced tax-credit pass-through.
The cases where solar got harder:
- Low-electricity-rate states where electricity savings are modest to begin with.
- Homeowners with shorter timelines who were relying on the federal credit to make 7-year payback work.
- Anyone who can't use Section 48E pass-through because they don't qualify for a lease or PPA.
Practical advice for homeowners
Given the new landscape:
If your system was installed in 2024 or 2025: file Form 5695 to claim the Section 25D credit on your tax return for the year the system was placed in service. The credit is yours; OBBBA is not retroactive. Consult a qualified tax advisor about how the credit interacts with your specific tax situation.
If you're considering solar in 2026 and beyond: model the math without the federal credit. If you're in a high-rate state with strong state incentives, the case for solar is still defensible. If you're in a low-rate state with no state incentives, the case got substantially weaker.
If you're evaluating leases or PPAs: ask each provider for the cash-equivalent system price (what they would charge if you paid up front) and compare across providers. The Section 48E pass-through varies enormously by provider; some keep most of the credit value, some pass meaningful savings through to you.
If you're a tax-credit speculation site: pay attention to ongoing legislative activity. The credit history shows that solar tax credits have been extended multiple times by both parties. A future Congress could re-extend the residential credit. Don't bet your purchase on it, but the political durability of solar incentives has historically been higher than year-by-year coverage suggests.
What to do next
The most important decision in 2026 is whether solar still works on your specific roof and in your specific state, given the new landscape. Our solar calculator models system cost and savings for your address, with the post-OBBBA tax credit reality factored in. Once you have a baseline estimate, compare quotes from pre-screened local installers who understand the current rules, including which lease or PPA structures actually pass meaningful Section 48E savings through to homeowners. The new landscape rewards informed shopping more than the old one did, because the federal credit is no longer doing the heavy lifting on the math.
Frequently asked questions
Is the federal solar tax credit still available in 2026?
Not for customer-owned residential systems. The One Big Beautiful Bill Act (signed July 4, 2025) terminated the Section 25D Residential Clean Energy Credit for systems installed after December 31, 2025. The 30% credit remains available indirectly through Section 48E for solar leases and Power Purchase Agreements, where the leasing company claims the credit, with deadlines that tighten through 2030 (consult a qualified tax advisor about your specific situation).
What was the Section 25D residential solar tax credit?
Section 25D of the Internal Revenue Code was the Residential Clean Energy Credit, a dollar-for-dollar federal tax credit equal to 30% of the cost of a customer-owned residential solar system. Originally enacted in 2005 and extended several times, the Inflation Reduction Act of 2022 set it at 30% through 2032 with a step-down through 2034. OBBBA accelerated termination by nearly a decade, ending the credit December 31, 2025.
What is Section 48E and how does it still apply to homeowners?
Section 48E is the commercial Clean Electricity Investment Credit. When a third party (a solar leasing company or PPA provider) owns the system installed on your roof, they can claim the 30% Section 48E credit and pass the value through to you via lower lease or PPA payments. Section 48E remains available for residential leases and PPAs but with new construction-start and placed-in-service deadlines through 2027–2030.
If I already installed solar in 2024 or 2025 with the 30% credit, do I lose it?
No. The OBBBA termination is not retroactive. If you installed and the system was placed in service on or before December 31, 2025, you can still claim the Section 25D credit on your federal tax return for the year of installation. Any unused credit (because your tax liability that year was less than the credit) can typically be carried forward to subsequent years under the existing 25D rules (consult a qualified tax advisor).
What about state-level solar tax credits?
State incentives are unaffected by OBBBA. Many states (New York, Arizona, South Carolina, Massachusetts, others) continue to offer separate state-level solar tax credits, rebates, or SREC markets that operate independently of the federal credit. State property tax exemptions and sales tax exemptions for solar also continue unchanged in most states. The federal change makes state incentives proportionally more valuable.
Is solar still worth it without the federal tax credit?
Yes, in most states, though payback is longer. Solar still produces meaningful electricity bill savings, locks in predictable energy costs against rising utility rates, and adds measurable home value (the Lawrence Berkeley National Laboratory premium of about $4 per watt). Payback for cash-purchase systems in 2026 typically runs 9–12 years versus 7–10 years with the credit, depending on state. The math still works in most high-electricity-rate states.