Solar Incentives and Tax Credits in 2026

If you have been following the solar industry, you already know that 2026 looks different from previous years. The federal residential solar tax credit, which allowed homeowners to deduct 30 percent of their installation costs, expired at the end of 2025. That is a significant change, and it has left many homeowners wondering whether going solar still makes financial sense.

The short answer is yes, it absolutely does. While the loss of the federal credit stings, a combination of state-level incentives, new leasing structures, net metering policies, and steadily declining equipment costs means solar remains one of the smartest investments you can make for your home. This guide walks you through everything that changed, everything that stayed the same, and exactly how to maximize your savings in 2026.

If you are still weighing whether solar is right for you, our guide on the real cost of installing solar panels at home breaks down the full financial picture.

What Happened to the Federal Solar Tax Credit?

The Residential Clean Energy Credit, known formally as Section 25D of the tax code, was one of the most powerful incentives driving solar adoption in the United States. From 2022 through 2025, it offered a 30 percent tax credit on the total cost of a residential solar installation, including equipment, labor, and battery storage.

That credit expired on December 31, 2025. The expiration was accelerated by the One Big Beautiful Bill, signed into law on July 4, 2025, which rolled back several Inflation Reduction Act provisions related to clean energy. If your solar system was not installed and operational by the end of 2025, you cannot claim the federal residential credit on a new installation in 2026.

This is a meaningful loss. On a typical $30,000 solar installation, the 30 percent credit was worth $9,000 in direct tax savings. Without it, homeowners need to look elsewhere for financial relief, and fortunately, there are still plenty of options.

If You Already Have Solar: Carry Forward Rules

Here is some good news for homeowners who installed solar in 2025 or earlier. If you claimed the Section 25D credit but your tax liability was not large enough to use the full amount, you can carry the unused portion forward into 2026 and beyond. The credit is nonrefundable, meaning it only reduces the taxes you owe rather than generating a cash refund, but there is no expiration on the carryforward.

To claim the credit, you need IRS Form 5695 (Residential Energy Credits). You calculate your qualified expenses on this form and then transfer the credit amount to Schedule 3 of your Form 1040. If you have been carrying forward unused credit from a prior year, the same form handles that calculation. Keep all your purchase receipts, installer invoices, and equipment specifications in case the IRS ever asks for documentation.

If you are not comfortable filing this yourself, Tax software like TurboTax or H&R Block can walk you through the solar credit step by step, or a qualified tax professional can handle it for you.

The Leasing and PPA Alternative: Section 48E

While the residential credit is gone, there is still a federal tax credit that indirectly benefits homeowners through third-party ownership arrangements. Section 48E, the Clean Electricity Investment Credit, is a business-level credit available to companies that invest in clean energy facilities, including solar.

Here is how it works for you as a homeowner. When you sign a solar lease or a Power Purchase Agreement (PPA), the solar company owns the system on your roof and claims the 48E credit themselves. They then pass some of those savings on to you in the form of lower monthly lease payments or a reduced per-kilowatt-hour rate. You do not get a tax credit directly, but you benefit from cheaper solar electricity without the upfront cost of buying a system outright.

There are important deadlines to be aware of. Under the One Big Beautiful Bill, solar and wind projects that begin construction on or after July 4, 2026 face a much tighter timeline: they must be placed in service by December 31, 2027 to qualify for the 48E credit. Projects that begin construction before that July 2026 cutoff get more breathing room, with a placed-in-service deadline extending through 2030 under safe harbor rules.

What this means practically is that if you are considering a solar lease or PPA, acting sooner rather than later gives the solar company more flexibility to claim the credit, which should translate to better pricing for you. By 2028, the commercial credit for solar may effectively disappear as well.

It is also worth noting that the One Big Beautiful Bill introduced Foreign Entity of Concern (FEOC) restrictions. For projects beginning construction after December 31, 2025, the solar company must certify that no components come from entities in China, Russia, Iran, or North Korea. Since China has historically been a dominant source of solar panels and components, this is reshaping supply chains and could affect pricing in the near term.

State Solar Incentives: Your Best Bet in 2026

With the federal credit gone for homeowners, state-level incentives are now the primary financial driver for residential solar. The good news is that many states offer substantial programs that can significantly reduce your costs. Here are the states with the strongest incentive packages in 2026.

New York

New York is arguably the best state for solar incentives right now. Homeowners can claim a 25 percent state tax credit worth up to $5,000, which directly reduces your New York state tax bill. On top of that, the NY-Sun program offers incentive payments of $0.20 to $0.40 per watt for residential installations, which can mean $1,200 to $2,400 off the cost of a typical 6-kilowatt system. New York also exempts the added value of solar from property tax assessments and offers strong net metering at full retail rates.

South Carolina

South Carolina offers one of the most generous state solar tax credits in the country: 25 percent of qualified costs, with a maximum of $35,000 spread over 10 years. That is an exceptionally high cap compared to most states and can make a dramatic difference in your payback period.

Massachusetts

Massachusetts provides a 15 percent state tax credit (capped at $1,000) plus the SMART program, which pays you a fixed rate for every kilowatt-hour your system produces over a 20-year period. The SMART payments are on top of whatever you save on your electric bill, making the overall economics very compelling. Solar installations in Massachusetts are also exempt from both property tax and sales tax.

New Jersey

New Jersey does not have a direct state tax credit, but its Successor Solar Incentive Program (SuSI) is one of the most valuable incentive structures in the country. Through SuSI, you earn performance-based payments tied to your system's actual energy production via Solar Renewable Energy Certificates (SRECs). New Jersey also offers full one-to-one retail-rate net metering at approximately $0.26 per kilowatt-hour, which is among the highest electricity rates in the nation, meaning your solar savings are proportionally larger. Both property and sales tax exemptions apply to solar installations.

Maryland

Maryland does not offer a state income tax credit either, but the Maryland Solar Access Program provides incentives for income-qualified households tied to system size, with awards issued during defined application windows. The state also has an active SREC market where you can earn ongoing income based on the electricity your system generates. Property and sales tax exemptions are available.

Oregon

Oregon's Solar + Storage Rebate Program offers up to $5,000 for solar installations and $2,500 for battery storage, with higher rebates available for low-income households. This is a rebate rather than a tax credit, which means you receive the money up front rather than waiting for tax season.

California

California does not currently offer a direct state income tax credit for solar. However, the Self-Generation Incentive Program (SGIP) provides rebates of $150 to $1,000 per kilowatt-hour for battery storage, which pairs well with a solar installation. California also excludes solar from property tax assessments. One significant change to be aware of: California transitioned from its generous NEM 2.0 net metering program to the Net Billing Tariff, which offers lower export rates for surplus solar electricity sent to the grid. This makes battery storage more important in California than ever before.

Illinois

Illinois operates the Illinois Shines program with performance-based incentives through its Adjustable Block Program, allowing homeowners to earn payments through SRECs. Solar installations are exempt from property tax increases.

For a deeper dive into equipment choices, check out our guide to choosing the best solar panels for your home.

Net Metering: Still a Major Factor

Net metering remains one of the most important financial components of going solar. When your panels produce more electricity than your home uses, the surplus flows back to the grid and your utility credits you for that energy. In states with strong net metering policies, those credits can dramatically improve your solar payback period.

As of 2026, 34 states plus Washington, D.C. and Puerto Rico have mandatory net metering rules. Only South Dakota and Tennessee have no version of net metering or any similar program. In states like New Jersey, you receive full retail-rate credits for every kilowatt-hour you export, which means each unit of surplus solar energy is worth the same as a unit you would have purchased from the grid.

However, the trend in some states is toward reducing the value of net metering credits. California's shift to the Net Billing Tariff reduced export compensation significantly. New York has proposed updated charges specifically for solar owners. Florida attempted to eliminate net metering entirely, though that effort failed.

If you are considering solar, check your state's current net metering policy before making a decision. In states with strong net metering, a solar system without battery storage can still make excellent financial sense. In states where net metering is being reduced, pairing solar with a home battery system like the Tesla Powerwall or Enphase IQ Battery becomes more important, since you can store your surplus energy and use it yourself during peak-rate evening hours rather than exporting it at a low rate.

How to Maximize Your Solar Savings in 2026

Even without the federal credit, there are concrete steps you can take to get the best possible deal on solar this year.

Check your state and local incentives first. Visit the Database of State Incentives for Renewables and Efficiency (DSIRE) at dsireusa.org to find every incentive available in your area. Many cities and counties offer additional rebates on top of state programs, and some utilities have their own solar incentive programs.

Get multiple quotes. Solar pricing varies significantly between installers. Getting at least three quotes ensures you are not overpaying. Services like EnergySage allow you to compare competing bids side by side without any pressure from salespeople.

Consider a solar lease or PPA. If the upfront cost of purchasing a system is a barrier, a lease or PPA lets you go solar with zero money down. The solar company owns the equipment and maintains it, while you pay a fixed monthly rate or per-kilowatt-hour price that is typically lower than your current utility bill. As discussed above, these arrangements can still benefit from the Section 48E commercial credit, at least through mid-2026.

Time your purchase carefully. If you are leaning toward a lease or PPA, doing it before July 2026 gives the solar company the best chance of qualifying for the 48E credit, which should mean better pricing for you. After that deadline, prices for leased systems may increase.

Pair solar with battery storage. In states where net metering is weakening, a battery system lets you store surplus energy for your own use during expensive peak hours. Many state incentive programs, like California's SGIP, offer specific rebates for battery storage. Batteries also provide backup power during grid outages, which is increasingly valuable as extreme weather events become more common.

Look into solar loans. Even without the federal credit, solar loan terms remain competitive in 2026. Many lenders offer 15- to 25-year terms with low interest rates, and the monthly loan payment is often less than your current electricity bill, meaning you start saving from day one.

Common Mistakes to Avoid

Assuming you cannot get any tax benefits. The federal residential credit is gone, but state credits, property tax exemptions, and sales tax exemptions are still widely available. Do not let the headline about the federal credit expiring discourage you from exploring your options.

Waiting too long. Solar equipment costs have been declining for years, but the loss of federal and potentially commercial credits means the overall cost to consumers may plateau or even rise. State incentive programs also have funding caps and can run out. Acting sooner generally means better economics.

Ignoring your roof condition. If your roof needs replacement within the next five to ten years, handle that before installing solar panels. Removing and reinstalling panels to replace a roof is expensive and can void warranties.

Skipping the energy audit. Before sizing a solar system, have your home assessed for energy efficiency improvements. Adding insulation, sealing air leaks, and upgrading to efficient appliances can reduce your energy needs, which means you can install a smaller (and cheaper) solar system that still covers your usage.

Not understanding your utility rate structure. Time-of-use rates, demand charges, and tiered pricing all affect how much solar saves you. Make sure your installer analyzes your actual utility bills, not just your average monthly usage.

The Bottom Line

The expiration of the federal solar tax credit is a real setback, but it does not change the fundamental math of solar energy. Equipment costs continue to decline, state incentive programs remain robust, net metering is still available in most of the country, and the electricity you generate from your own roof is still free once the system is paid off.

If you live in a state with strong solar incentives like New York, New Jersey, South Carolina, or Massachusetts, the economics remain very favorable. Even in states with fewer incentives, solar typically pays for itself within 8 to 12 years and then generates free electricity for another 15 to 20 years beyond that.

For homeowners who want to avoid the upfront cost entirely, solar leases and PPAs provide a path to lower electricity bills with no money down, and the commercial 48E credit keeps those options competitively priced through at least mid-2026.

The renewable energy landscape is shifting, but solar is not going anywhere. If anything, the combination of rising electricity costs and improving technology makes the case for solar stronger every year. To understand more about the broader clean energy picture, check out our overview of renewable energy, how it works, and why it matters.