If you're pricing solar in 2026, start here, because the single biggest number in every quote calculator you'll find online is now wrong: the 30% federal Residential Clean Energy Credit (IRC §25D) no longer applies to a system you finish this year. It was terminated early by Public Law 119-21, enacted July 4, 2025, and it cannot be claimed for expenditures made after December 31, 2025.
The timing rule is the part that catches people. The IRS treats an expenditure as made when the original installation is completed — not when you signed the contract, not when you paid the deposit, not when the panels arrived on a pallet in your driveway. So if your installer finishes the job in 2026, you get nothing federally, even if you signed in October 2025 and have the invoice to prove it.
What that costs you in plain dollars: on a $28,000 system, the old credit was worth $8,400. That $8,400 is simply gone for a 2026 completion. Any payback calculation you ran before mid-2025 was built on it, so those payback periods are all too short now. Sources: the IRS FAQs for modification of sections 25C, 25D and others under Public Law 119-21 and its Home Energy Tax Credits page.
Who Can Still Claim It
One group can: homeowners whose systems were completed in 2025 or earlier. If your original installation was finished on or before December 31, 2025, the credit is claimed on the return for that year, at the 30% rate, on IRS Form 5695. If you completed a system in 2025 and haven't filed yet — or filed without it — that credit is still yours, and an amended return is worth asking your tax preparer about.
Everything below about eligible expenses, Form 5695, and carry-forward applies to those pre-2026 completions. If your system is going in this year, skip ahead to what's left at the state and utility level.
What the 30% Credit Covered (for 2025 and Earlier Completions)
The federal solar tax credit covered more than just the panels themselves. Here's the full list of eligible expenses:
- Solar photovoltaic (PV) panels — the panels themselves
- Inverters and optimizers — string inverters, microinverters, power optimizers
- Battery storage systems — must have a capacity of at least 3 kWh (this was added by the Inflation Reduction Act)
- Installation labor — all contractor labor costs for the solar installation
- Mounting hardware and racking — the equipment that attaches panels to your roof
- Wiring and electrical upgrades — panel box upgrades, conduit, disconnects
- Permitting fees and inspection costs — local building permits related to the installation
- Sales tax on eligible equipment — in states that charge it
What's NOT covered: roof repairs or replacement (even if needed for solar), landscaping, tree removal, or any cosmetic work unrelated to the solar system itself. For a full breakdown of panel and installation costs, check out our solar panel cost guide for 2026.
How to Claim It for a 2025 Completion: Step-by-Step
- Confirm your completion date — The original installation must have been completed on or before December 31, 2025. "Completed" means the system was installed and capable of generating electricity, not just purchased or contracted.
- Get your final invoice and receipts — You'll need documentation of all costs including equipment, labor, permits, and any battery storage.
- Complete IRS Form 5695 — This is the "Residential Energy Credits" form. Part I is for the solar credit. Enter your total qualified solar expenses on Line 1.
- Calculate your credit — Multiply your total qualified expenses by 0.30 (30%). Enter this on Line 6b of Form 5695.
- Transfer to Form 1040 — The credit amount flows from Form 5695 to Schedule 3 (Form 1040), Line 5. This directly reduces your tax liability.
- File your return — Include Form 5695 and Schedule 3 with your tax return for the year the system was completed.
Can You Carry Forward Unused Credit?
Yes, and this matters more now than it used to. If your tax liability in the year of completion was less than your solar credit, you can carry the remaining balance forward to future tax years. For example, if your 2025 credit was $8,400 but you only owed $5,000 in federal taxes, you'd claim $5,000 for 2025 and carry the remaining $3,400 into 2026. The credit expiring does not wipe out a carryforward from a system that already qualified — ask your tax preparer to confirm how yours should be handled.
Income Requirements
For qualifying (2025 and earlier) systems, there were no income limits. Whether you earned $40,000 or $400,000, you qualified for the full 30%, and there was no cap on the dollar amount — a $100,000 system produced a $30,000 credit. The only requirement was owing enough in federal income taxes to use it, or carrying it forward.
State-Level Solar Credits and Incentives
With the federal credit gone, state and utility programs are the entire incentive picture for a 2026 installation. Several are substantial:
| State | Incentive | Details |
|---|---|---|
| New York | 25% state tax credit | Up to $5,000 cap |
| California | Net metering + SGIP battery rebate | Up to $1,000/kWh for batteries |
| Massachusetts | 15% state tax credit + SMART program | Up to $1,000 state credit |
| South Carolina | 25% state tax credit | Up to $3,500 cap |
| Arizona | Sales tax exemption + property tax exemption | Full exemption on solar equipment |
| New Jersey | Sales tax exemption + SRECs | Earn $90–$200+/SREC annually |
| Texas | Property tax exemption | 100% solar value excluded from property tax |
These programs used to stack on top of the federal ITC — a New York homeowner with a $28,000 system completed in 2025 could combine $8,400 federal with $5,000 state for $13,400 in credits. In 2026 only the state half of that arithmetic survives. Programs change constantly, so confirm current terms for your address on DSIRE and with your own utility, and see our state-by-state solar incentives pages.
Common Mistakes to Avoid
- Assuming a 2025 contract locks in the credit — It doesn't. The expenditure is treated as made when the original installation is completed. A contract signed in 2025 and finished in 2026 gets no federal credit.
- Trusting a quote that still nets out 30% — Plenty of installer proposals and online calculators have not been updated. If a quote shows a "net cost after federal credit" for a 2026 install, ask the installer to show you the gross number and re-run your payback on that.
- Claiming the credit on a leased system — For qualifying pre-2026 systems, if you leased your panels or signed a PPA, the leasing company got the credit, not you. You had to own the system.
- Forgetting to include all eligible costs on a 2025 claim — If your system was completed in 2025, don't leave out battery storage, electrical panel upgrades, or permitting fees.
- Confusing tax credit with tax deduction — An $8,400 credit reduces your tax bill by $8,400. A deduction of the same amount might only save you $1,800–$2,800 depending on your bracket. That difference is exactly what was lost.
Does Solar Still Make Sense in 2026?
For some homes, yes — but the answer now depends far more on where you live than it did a year ago. Without the federal credit, the three things that decide payback are your electricity rate, your net metering terms, and whatever your state and utility offer. A homeowner in a high-rate state with full retail net metering and a state credit can still get to a reasonable payback. A homeowner in a cheap-power state with net billing and no state incentive very likely cannot, at least not on the timeline that used to be quoted.
Practical advice: get at least three written quotes, insist on gross installed cost rather than a "net" figure, and run the payback yourself against your actual utility bill. Our solar savings calculator works from installed cost with no credit netted out, and our complete solar panel cost guide covers what systems actually cost per watt in 2026.
None of this is tax advice. If you completed a system in 2025 and are unsure how to claim it, or you have a carryforward to handle, talk to a tax professional and check the current IRS guidance linked above.