Federal Solar Tax Credit Ended: What Homeowners Face in 2026

What the credit was

The Residential Clean Energy Credit, section 25D of the Internal Revenue Code, let homeowners subtract 30% of the cost of qualifying home energy equipment from their federal income tax. Rooftop solar panels were the best-known example. The IRS describes the credit as equal to 30% of the costs of new, qualified clean energy property installed from 2022 through December 31, 2025. The credit had no annual or lifetime dollar limit apart from caps on fuel cell property.

It was nonrefundable. The amount claimed could not exceed the tax a household owed in a given year, but unused credit carried forward to later years. That detail mattered for retirees and low-tax households, who often could not use the full amount at once.

How the law ended it

The One Big Beautiful Bill Act (Public Law 119-21) was signed on July 4, 2025. Section 70506 of the law changed the end date in section 25D(h). The old text ended the credit for property placed in service after December 31, 2034. The new text says the credit does not apply “with respect to any expenditures made after December 31, 2025.”

The same section also deleted the later-year rate steps from section 25D(g). There is no phase-down. The credit applied at 30% through the end of 2025 and then stopped.

What counts as an expenditure

The deadline turns on when an expenditure is “made,” and that is not the payment date. IRS fact sheet FS-2025-05, published August 21, 2025, answers the question directly. A taxpayer cannot claim the credit for property installed after December 31, 2025, even if the taxpayer paid for it on or before that date.

The IRS bases this on section 25D(e)(8)(A), which treats an expenditure for an item as made when the original installation of the item is completed. If installation was finished in 2026, the expenditure counts as made in 2026, and the section 25D credit is not available. A deposit, a signed contract, or full prepayment in 2025 does not change that.

For a home under construction, a different rule applies. The expenditure is treated as made when the taxpayer’s original use of the new or rebuilt home begins. If that happened after December 31, 2025, the credit is gone for that home as well.

Homeowners who finished an installation in 2025 can still claim the credit on their 2025 return, and any unused portion carries forward to later years under the credit’s carryforward rule.

What still exists

Third-party owned systems

A different federal credit, the clean electricity investment credit under section 48E, still applies to solar for now. It is claimed by businesses, not homeowners. A company that owns a rooftop system and rents it to a household through a lease or a power purchase agreement can claim it.

Section 70513 of the law ends section 48E for solar facilities placed in service after December 31, 2027. Solar facilities whose construction begins by July 4, 2026 are exempt from that cutoff, according to the law’s effective-date rule for facilities “the construction of which begins after the date which is 12 months after the date of enactment.” The IRS explains in Notice 2025-42 how to show construction began before July 5, 2026. For most solar facilities the Physical Work Test is the only method. Facilities of 1.5 megawatts (AC) or less, which includes every home system, may also use the Five Percent Safe Harbor.

Does leased residential solar qualify? The statute does not exclude it. Section 70513 adds a ban on section 48E credits for leased property, but it covers only property described in paragraphs (1) and (4) of section 25D(d). Those are solar water heating and small wind. Leased rooftop solar electric systems are not named. Under the text of the law, a company can still claim the credit on a leased solar panel system placed in service through 2027, or later if construction began in time.

Whether any of that value reaches the customer is a pricing question, not a tax one. The credit belongs to the owner, and lease or PPA rates are set by the provider. Compare quoted rates, escalator clauses, and the buyout terms, not the headline claim about tax credits.

State and utility incentives

State programs are separate from the federal credit and were not changed by the federal law. These include state income tax credits, property tax exemptions, sales tax exemptions, rebates, and utility battery programs. Each state’s page on this site lists the ones that are open, with links to the program source. See the state index to find yours.

How the end of the credit changes payback

The credit reduced what a homeowner paid after tax time. In a hypothetical example, a $20,000 system with a 30% credit ended up costing $14,000 net, before any state incentive. Without the credit, the same system costs the full $20,000.

The arithmetic is worth stating carefully. Net cost rises by about 43%, not 30%, because paying 100% instead of 70% is an increase of 30 over 70. Payback stretches by the same proportion when everything else is equal. A system that previously paid for itself in 7 years would take about 10 years at that same price.

Two other factors can offset part of this. Installed prices may move, and retail electricity rates have generally risen over time. Neither is guaranteed, so the calculators on this site use current published prices and rates rather than assumptions about future ones. How the numbers are built is explained on the methodology page.

Payback also depends on how the local utility pays for exported power. Where exports earn less than the retail price, using solar power at home matters more. That is covered in the guide on net metering versus net billing.

Questions to ask before signing

• Date of completion. Any 2026 installation falls outside section 25D, whatever the contract date.
• Who claims a credit, if any. Ask whether the quote assumes a section 48E credit. If so, the seller or financier owns that claim, and the price should reflect it.
• Lease terms. Ask for the escalator, the term, the transfer rules when selling the house, and the buyout price.
• State and utility programs. Confirm each one on the program page, because funds and deadlines change.

Tax treatment depends on individual circumstances. A tax professional can confirm how any of these rules apply to a specific household.