What the Federal Solar Tax Credit Expiry Means for Homeowners in 2026

What Changed on January 1, 2026

The federal residential solar tax credit - officially known as the Investment Tax Credit (ITC) under Section 25D of the US Tax Code - expired for customer-owned systems on January 1, 2026. For homeowners who purchase their own solar systems, the credit dropped from 30% to 0%.

This happened because of the "One Big Beautiful Bill Act" (OBBBA), signed into law on July 4, 2025. The legislation ended the residential solar tax credit nearly a decade earlier than originally scheduled under the Inflation Reduction Act of 2022.

For a homeowner installing a $25,000 solar system, this means losing $7,500 in tax savings that would have been available just weeks earlier.

What's Still Available

Solar leases and PPAs: The commercial solar tax credit (Section 48E) remains available for third-party owned systems if construction begins before July 2026 or the system is placed in service by 2028. Solar companies can pass savings to homeowners through lower monthly rates.

State and local incentives: Many states offer their own incentives unaffected by the federal change:

• New York: 25% state solar tax credit (up to $5,000) plus NY-Sun program rebates (source: DSIRE)
• New Jersey: Successor Solar Incentive (SuSI) program pays approximately $85 per MWh for 15 years (source: DSIRE)
• New Mexico: 10% state solar tax credit up to $6,000 (source: DSIRE)
• South Carolina: 25% state solar tax credit up to $3,500 per year with 10-year carryforward (source: DSIRE)
• Massachusetts: 15% state tax credit (up to $1,000) plus SMART program (source: DSIRE)

Property tax exemptions: Most states exempt solar installations from property tax assessment. California, Florida, Texas, New York, and many others have this exemption in place (source: DSIRE).

Sales tax exemptions: Some states exempt solar equipment from sales tax. States with this exemption include Arizona, Colorado, Connecticut, Florida, Maryland, New Jersey, New York, and others (source: DSIRE).

Net metering: Available in most states, net metering allows you to earn credits for excess solar electricity sent back to the grid.

Does Solar Still Make Sense Without the Federal Credit?

Yes, for most homeowners - but with longer payback periods.

According to EnergySage, the average cost of a residential solar system in 2026 is around $2.50–$3.00 per watt before incentives. For a typical 10 kW system, that's $25,000–$30,000.

In states with high electricity rates - California (31.5 cents/kWh), Connecticut (29.5 cents/kWh), Massachusetts (28.6 cents/kWh), Hawaii (42.5 cents/kWh) - solar still pays for itself in 6–10 years even without the federal credit (EIA pricing data).

In states with lower electricity rates - Louisiana (12.8 cents/kWh), Washington (12.1 cents/kWh) - the payback period extends to 12–18 years, which may not make financial sense unless state incentives bridge the gap.

What About Battery Storage?

California's SGIP (Self-Generation Incentive Program) provides rebates for battery storage (source: DSIRE). Colorado's Xcel Energy Renewable Battery Connect offers up to $5,000 for eligible batteries (source: DSIRE). Oregon's Solar + Storage Rebate Program provides $0.20–$1.80 per watt depending on household income (source: DSIRE).

What to Do Now

First, check state and local incentives at dsireusa.org - the most comprehensive source for this information.

Second, get multiple quotes. EnergySage and other comparison platforms help you see what's available in your area.

Third, consider a solar lease or PPA if upfront cost is a barrier.

Fourth, don't overlook battery backup as a standalone investment. A portable power station provides immediate outage protection at a much lower cost than a full solar installation.

*Sources: EnergySage federal solar tax credit guide (2026), DSIRE incentive database, EIA residential electricity pricing data. All information verified as of March 2026. This is not tax advice - consult a licensed tax professional for your specific situation.*