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. This is not a reduction or phase-down. For homeowners who purchase their own solar systems, the credit dropped from 30% to 0% overnight.

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, the 30% credit was supposed to continue through 2032.

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. That's a significant financial hit, and it has changed the math on solar for millions of American homeowners.

What's Still Available

The expiry applies specifically to systems purchased and owned by homeowners. Other paths to solar still offer indirect tax credit benefits:

Solar leases and PPAs (Power Purchase Agreements): 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 that own the system can claim this credit and pass savings to homeowners through lower monthly rates.

State and local incentives: Many states offer their own incentives that are unaffected by the federal change. Some of the strongest state programs include:

New York offers a 25% state solar tax credit (up to $5,000), plus NY-Sun program rebates - one of the most generous state incentive packages in the country (source: DSIRE).

New Jersey's Successor Solar Incentive (SuSI) program pays solar owners approximately $85 per MWh of electricity generated for 15 years, potentially worth over $10,000 for an average system (source: DSIRE, Solar.com).

New Mexico offers a 10% state solar tax credit up to $6,000 (source: DSIRE).

South Carolina offers a 25% state solar tax credit up to $3,500 per year with a 10-year carryforward (source: DSIRE).

Massachusetts offers a 15% state tax credit (up to $1,000) plus the SMART program providing performance-based incentives (source: DSIRE).

Property tax exemptions: Most states offer property tax exemptions for solar installations, meaning the added home value from solar doesn't increase your property tax bill. 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. With state sales tax rates of 6–10%, this can save $1,500–$3,000 on an average system. 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 you send back to the grid. These credits offset your electricity bill during times when your panels aren't producing (nighttime, cloudy days). The value varies by state - some offer full retail rate credits, others offer reduced rates. Note that several states are reducing net metering compensation, so the value of this benefit may decline over time.

Does Solar Still Make Sense Without the Federal Credit?

The short answer: yes, for most homeowners, but with longer payback periods.

Solar panel prices have dropped dramatically over the past decade. 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.

Without the 30% federal credit, your out-of-pocket cost is $7,500 higher than it would have been in 2025. But electricity costs keep rising. The EIA reports that residential electricity prices have increased an average of 2–4% annually in recent years.

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, based on 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?

Battery storage for home backup is a separate decision from solar, though they pair well together. The federal tax credit expiry also applies to standalone battery storage for homeowner-purchased systems.

However, some states offer dedicated battery incentives that remain available:

California's SGIP (Self-Generation Incentive Program) provides rebates for battery storage, with higher amounts for low-income households and homes in fire-prone areas (source: DSIRE).

Colorado's Xcel Energy Renewable Battery Connect program offers up to $350 per kW (up to $5,000) for eligible batteries (source: DSIRE, EnergySage).

Oregon's Solar + Storage Rebate Program provides $0.20–$1.80 per watt depending on household income (source: DSIRE).

Even without incentives, a battery backup system provides value beyond electricity savings - it's insurance against outages. For homeowners in outage-prone states, the peace of mind and avoided costs of spoiled food, emergency hotel stays, and damaged equipment can justify the investment.

What to Do Now

If you're considering solar or battery backup in 2026, here's a practical approach:

First, check what state and local incentives apply to your specific situation. Programs vary significantly by state, and some (like New Jersey's SuSI) can be worth thousands of dollars. The DSIRE database (dsireusa.org) is the most comprehensive source for this information.

Second, get multiple quotes. Solar costs vary by region and installer. EnergySage and other comparison platforms can help you see what's available in your area.

Third, consider a solar lease or PPA if upfront cost is a barrier. You won't own the system, but you'll still save on electricity, and the provider may pass along some federal credit savings through lower rates.

Fourth, don't overlook battery backup as a standalone investment. Even without solar, a portable power station provides immediate protection against outages at a much lower cost than a full solar installation.

IsGridUp can help you figure out what combination of solar, battery, and generator makes sense for your specific home, budget, and location - including what incentives apply in your state.

[Get your personalised energy plan →](https://isgridup.com/plan)

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