Federal Solar Tax Credit in 2026: What Ended and What Still Qualifies
- Sarah Lozanova
- Apr 10
- 15 min read
Updated: 3 hours ago
Table of Contents
Solar Tax Credit Ending
Solar Tax Credit Projects
The federal solar tax credit has been one of the most powerful financial incentives in the history of U.S. clean energy policy, and it changed dramatically in 2025. On July 4, 2025, the One Big Beautiful Bill Act was signed into law, officially eliminating the residential 25D solar tax credit for systems installed after December 31, 2025.
For homeowners who purchased solar in 2025, the 30% credit still applies when filing taxes. But in 2026, direct ownership no longer qualifies for a federal incentive. For homeowners considering solar in 2026, some third-party-owned structures may still benefit from Section 48E. Qualifying PPA structures may allow the project owner, rather than the homeowner, to claim the Clean Electricity Investment Credit. However, the OBBB generally prevents a taxpayer from claiming the credit for qualifying solar property that it rents or leases to a third party.
Business- and third-party-owned solar, including residential leases and PPAs, follows Section 48E rules rather than the former homeowner Section 25D rules. Projects that begin construction by July 4, 2026, generally retain a longer completion window. Those beginning construction after that date generally must be placed in service by December 31, 2027, to qualify for Section 48E. The credit has a 6% base rate, generally increased to 30% for projects that meet prevailing wage and apprenticeship requirements or qualify for an applicable exception.
Since 2013, GreenLancer has supported solar contractors and homeowners nationwide with engineering, permitting, and interconnection services. This guide covers the history of the federal solar tax credit, what the Big Beautiful Bill changed, and what incentives are still available in 2026.
Is There Still a Federal Solar Tax Credit in 2026?
For homeowners buying their own solar system, no. The Section 25D Residential Clean Energy Credit ended for new qualifying expenditures after December 31, 2025. Homeowners with qualifying 2025 solar expenses can still claim the credit on their 2025 federal tax return.
In 2026, some third-party-owned residential solar projects may still benefit from Section 48E, with the project owner rather than the homeowner claiming the credit. PPAs may qualify when structured to meet Section 48E requirements, while the OBBB generally bars the credit when qualifying solar property is rented or leased to a third party.
Situation | Federal credit in 2026? |
Homeowner buys new solar in 2026 | No Section 25D credit |
Homeowner claims a qualifying 2025 installation | Yes, on the 2025 return |
Third-party-owned residential solar/PPA installed in 2026 | Project owner may qualify for 48E, subject to ownership, structure, timing, sourcing, and other requirements |
Commercial solar | 48E may apply, subject to timing rules |
Standalone storage owned by a business/TPO | 48E may remain available under different phase-out rules |
Understanding the Federal Solar Tax Credit
The federal solar tax credit allowed homeowners to deduct 30% of eligible installation costs, including panels, inverters, battery storage, racking, wiring, and labor, directly from their federal income taxes. For many homeowners, this incentive was the difference between delaying a project and moving forward.
Homeowners who installed solar in 2025 claim the credit by filing IRS Form 5695 with their federal tax return.
What the One Big Beautiful Bill Changed
The residential 25D solar tax credit ended December 31, 2025, with no phase-out period. Systems placed in service after that date do not qualify for the direct ownership credit regardless of when contracts were signed or deposits paid.
For homeowners in 2026, direct ownership no longer qualifies for Section 25D. Some third-party-owned residential solar projects, including qualifying PPA structures, may still benefit from Section 48E when the project owner meets the applicable requirements. The OBBB generally prevents 48E from being claimed for qualifying solar property that is rented or leased to a third party.
Battery storage requires a separate distinction. Homeowner-owned battery systems installed after 2025 no longer qualify for Section 25D. Business- and third-party-owned energy storage may still qualify for Section 48E and is not subject to the same accelerated 2027 termination rule that applies to certain wind and solar facilities.
For qualifying commercial and third-party-owned projects, Section 48E remains available under the OBBB's revised timing rules. Solar projects that begin construction by July 4, 2026 can retain a longer completion window under the continuity rules, while projects beginning construction after that date generally must be placed in service by December 31, 2027. The Section 48E base credit is 6%, generally increased to 30% when prevailing wage and apprenticeship requirements are met or an applicable exception applies.
A Brief History of Solar Tax Credits in the U.S.
Solar tax incentives have existed for decades, well before modern photovoltaic systems became common. The first federal solar energy tax credit was introduced in 1978 during the energy crisis, designed to help homeowners and businesses adopt early solar technologies, primarily solar thermal water-heating systems.
That early program offered tiered incentives, including:
30% of the first $2,000 in solar equipment costs
20% of the next $8,000
By 1980, the structure expanded to 40% of the first $10,000 in qualified costs. While modest by today's standards, these early credits helped establish solar as a legitimate policy priority.
The Modern Solar Tax Credit (2005–2025)
The modern residential and commercial solar tax credit was created under the Energy Policy Act of 2005, offering a 30% credit for qualifying installations. Initially, homeowners faced a $2,000 cap. That cap was removed in 2008, unlocking the full 30% value and accelerating nationwide adoption significantly.
From 2006 to 2024, installed U.S. solar capacity grew from roughly 500 megawatts to more than 160 gigawatts, according to SEIA. That growth was driven by a combination of stable federal incentives, falling equipment costs, and expanding installer networks.
Between 2020 and 2022, the credit briefly stepped down to 26% and then 22% before the Inflation Reduction Act of 2022 restored it to 30% and extended it through 2032. That extension proved short-lived.
Why 2025 Marks a Turning Point for the Solar Tax Credit
The One Big Beautiful Bill Act, signed July 4, 2025, ended the residential solar tax credit effective December 31, 2025, reversing the IRA's long-term extension. For homeowners, this marked the close of a 20-year federal incentive that helped transform U.S. solar from a niche technology into a mainstream energy source.
The commercial and third-party-ownership Investment Tax Credit continues under new deadlines, with the system owner, not the homeowner, claiming Section 48E, but the era of a direct federal credit for homeowners who purchase solar outright has ended.
Evolution of the Solar Tax Credit
The federal solar tax credit has continually adapted to support clean energy growth. This section covers how the credit changed in recent years and what ultimately ended it for residential buyers.
Modern Updates That Shaped the Solar Credit
Over the past two decades, the solar tax credit has evolved alongside the industry itself:
Broader eligibility: What once applied mostly to solar panels now includes inverters, racking, wiring, labor, and more recently, battery storage, including standalone batteries.
Support for larger systems: Commercial and utility-scale projects gained clear “begin construction” rules, which allowed companies to lock in the credit while working through long project timelines.
Temporary step-down periods: Between 2020 and 2022, the credit briefly dropped from 30% to 26% and 22%, signaling an eventual phase-down.
The Inflation Reduction Act and the Return to 30%
In 2022, the Inflation Reduction Act restored the federal solar tax credit to 30% and extended it through 2032 under the new 25D and 48E framework. This brought stability back to the residential and commercial markets and encouraged wider adoption of solar-plus-storage systems. The IRA also expanded eligibility to include standalone battery storage for the first time.
The One Big Beautiful Bill: The Biggest Shift in the Program's History
The One Big Beautiful Bill Act, signed July 4, 2025, reversed the IRA's long-term extension. The law officially ended the residential 25D solar tax credit after December 31, 2025, with no phase-out period. For commercial and third-party-owned projects, the 30% ITC continues, but generally only for systems that begin construction by July 4, 2026, and are placed in service by December 31, 2027, unless the longer continuity safe harbor applies.
Business- and third-party-owned battery storage received a longer federal runway. Qualifying energy storage can remain eligible under Section 48E and is not subject to the same accelerated December 31, 2027 termination rule that applies to certain solar projects. This does not extend the homeowner Section 25D credit: homeowner-owned batteries installed after 2025 no longer receive that residential credit.
Pros and Cons of the Solar Tax Credit in 2025
The federal solar tax credit played a major role in making solar panel systems more affordable and accelerating clean energy adoption across the U.S. Understanding both its strengths and limitations helps homeowners and installers evaluate what the credit accomplished and what comes next.
Pros of the Federal Solar Tax Credit in 2025
✅ Substantial Cost Savings - The 30% credit reduced the total cost of solar installations significantly, helping more homeowners afford solar and shortening the payback period on their investment.
✅ Accelerates Renewable Energy Adoption - By lowering financial barriers, the federal solar tax credit helped expand access to clean energy and supported rapid growth in the U.S. solar market. Installed capacity grew from roughly 500 megawatts in 2006 to more than 160 gigawatts by 2024, according to SEIA.
✅ Boosts the Clean Energy Economy - The credit helped launch thousands of solar companies and supported a workforce that reached over 263,000 jobs by 2024, spanning installation, design, engineering, and permitting.
✅ Encourages Long-Term Energy Savings - Beyond the upfront tax benefit, solar systems generate decades of electricity bill savings, making the credit a catalyst for long-term household financial resilience.
Cons of the Solar Panel Tax Credit in 2025
⚠️ Less Accessible to Low-Income Households - The residential credit was non-refundable, meaning it reduced tax liability but could not generate a refund. Homeowners with lower federal tax liability could not always use the full credit in a single year, though carry-forward provisions helped offset this over time.
⚠️ Delayed Benefit Realization - Since the credit is claimed at tax time, homeowners had to wait months after installation to realize the savings, unless their installer offered financing or other upfront options to bridge the gap.
⚠️ End of the Residential Tax Credit After 2025 - The One Big Beautiful Bill Act ended the 25D residential solar tax credit after December 31, 2025. Homeowners purchasing solar outright in 2026 or later have no direct federal tax credit available. The only remaining federal pathway is third-party ownership through leases, PPAs, or prepaid solar products, where the system owner may claim the 48E credit and pass along some savings.
⚠️ Limited for Renters and Shared Housing - The residential credit was largely unavailable to renters and multifamily housing residents unless structured through community solar or shared solar arrangements, leaving a significant portion of households without access.
Solar Tax Credit 2026: What’s Next for Homeowners & Installers?
The December 31, 2025 deadline has passed, and the landscape for residential solar incentives has shifted significantly. Here is what homeowners and installers face now.
What Homeowners Can Still Access
Homeowners who installed solar before the deadline can still claim the 30% credit when filing their 2025 federal tax return using IRS Form 5695.
For new installations in 2026, the homeowner's direct Section 25D credit is gone. Some third-party-owned projects may still benefit from Section 48E. A qualifying PPA structure, for example, may allow the project owner to claim the credit rather than the homeowner. Conventional lease structures require particular caution because the OBBB generally prevents a taxpayer from claiming the credit when qualifying solar property is rented or leased to a third party.
Homeowners considering solar in 2026 should ask installers specifically about lease and PPA options, and compare them against state and local incentives available in their area via DSIRE. Battery storage is worth noting separately. Homeowner-owned batteries installed after 2025 no longer qualify for Section 25D. However, qualifying business- or third-party-owned energy storage may remain eligible for Section 48E beyond the accelerated solar deadline.
What the Commercial ITC Timeline Looks Like
Qualifying commercial and third-party-owned solar follows Section 48E rules. Solar projects beginning construction after July 4, 2026 generally must be placed in service by December 31, 2027 to remain eligible. Projects that establish beginning of construction by July 4, 2026 can retain a longer completion window under the continuity rules. Projects beginning construction in 2026 must also satisfy new prohibited foreign entity (PFE) requirements, often called FEOC restrictions, limiting components sourced from specified foreign entities.
What This Means for Installers
For solar installers, 2026 brings a different kind of pressure. Residential volume is expected to soften following the credit's expiration, while commercial pipeline activity intensifies ahead of the July 2026 construction deadline. Many installer teams are responding by expanding into commercial work, adding battery storage offerings, and educating residential customers on lease and PPA structures that still carry a federal incentive.
GreenLancer supports installers navigating this shift with permit-ready plan sets, engineering, and interconnection support across all 50 states.
The Future of the Solar Tax Credit
The residential 25D solar tax credit ended December 31, 2025, marking the biggest shift in U.S. clean energy incentive policy in two decades. For homeowners considering solar in 2026 and beyond, the federal landscape looks different but is not entirely without options.
What Homeowners Can Access in 2026
The direct purchase credit is gone, but homeowners are not completely without federal support. The key options now are:
Third-party ownership. Solar leases, PPAs, and prepaid solar products remain eligible for Section 48E, generally through December 31, 2027, with a longer completion window for projects that began construction by July 4, 2026. Installers and financiers claim the credit and pass savings to customers through lower rates or reduced system costs.
Battery storage. Standalone storage is not subject to the same accelerated phase-out as solar under the One Big Beautiful Bill and retains a longer federal incentive runway, making solar-plus-storage an attractive option even for 2026 installations.
State and local incentives. With federal support reduced, state programs become more important. The DSIRE database maintained by NC State University tracks active incentives across all 50 states. New York, New Jersey, Illinois, and California maintain meaningful programs that can partially offset the loss of the federal credit.
Utility rebates and net metering. Time-of-use savings and net metering policies vary by utility but continue to improve the economics of going solar in many markets. The EPA's green power resources provide a useful overview of how local utility structures affect solar savings.
Commercial Solar Tax Credit Outlook
Section 48E remains available for qualifying commercial and third-party-owned solar under new timelines established by the One Big Beautiful Bill Act. The base credit is 6%, generally increasing to 30% for projects that satisfy prevailing wage and apprenticeship requirements or qualify for an applicable exception.
Projects beginning construction in 2026 must also comply with prohibited foreign entity (PFE) rules, often called FEOC restrictions, limiting components sourced from specified foreign entities, adding a new layer of compliance planning for developers. The Treasury Department's guidance under IRS Notice 2025-42 covers begin-construction standards, and IRS Notice 2026-15 provides interim guidance on calculating material assistance from a PFE.
What the Solar Market Looks Like Going Forward
The end of the residential federal solar tax credit is reshaping the market in real time. SEIA projects a near-term shift in residential installation patterns, with leases and PPAs capturing a larger share of new installations, increased interest in battery storage, and a commercial pipeline accelerating ahead of the July 2026 construction deadline.
The solar investment tax credit going away for direct ownership purchases does not eliminate the case for solar. Long-term electricity bill savings, rising utility rates, and the availability of third-party ownership structures mean solar remains a sound financial decision in many markets. The economics are simply different without a 30% federal credit reducing day-one costs for buyers.
The Legacy of the Federal Solar Tax Credit
Few energy policies have reshaped an industry as decisively as the federal solar tax credit. From its modern reintroduction under the Energy Policy Act of 2005 through its end for residential buyers in 2025, the credit helped move solar from a niche technology to a cornerstone of U.S. energy infrastructure.
How the Solar Tax Credit Transformed the Industry
Over nearly two decades, the federal solar investment tax credit made solar financially viable for millions of households and businesses. By reducing upfront installation costs by 30%, it accelerated adoption across residential, commercial, and nonprofit sectors alike.
The results were substantial. According to SEIA, installed U.S. solar capacity grew from roughly 500 megawatts in 2006 to more than 160 gigawatts by 2024 — a 320-fold increase driven by falling equipment costs, expanding installer networks, and the consistent pull of federal incentives. The U.S. is now one of the largest solar markets in the world, a position built significantly on the foundation of the ITC.
Clean Energy Jobs and Economic Impact
The solar tax credit did not just lower electricity bills — it built an industry. The U.S. Department of Energy tracks solar's economic footprint, which by 2024 included over 263,000 American jobs spanning installation, design, permitting, engineering, and manufacturing. Thousands of solar companies launched or scaled during the ITC era, many of them small regional installers that now form the backbone of the residential market.
The Solar Foundation's National Solar Jobs Census has documented this workforce expansion annually, showing how policy stability directly translated into job creation across nearly every U.S. state.
What the Credit's End Means for the Industry
The expiration of the residential credit closes a chapter, but the infrastructure it built remains. Hundreds of thousands of trained installers, established permitting workflows, mature supply chains, and a public familiar with solar as a viable option are all durable legacies of two decades of federal incentive policy. The solar investment tax credit going away for homeowners changes the economics of new installations, and it does not undo what the industry has already become.
Solar Tax Credits in 2026 and Beyond
The residential solar tax credit ended December 31, 2025. Homeowners who completed installations before that date claim the 30% credit on their 2025 return using IRS Form 5695. For 2026 residential installations, homeowners can no longer claim Section 25D. Some third-party-owned projects may still benefit from Section 48E, including qualifying PPA structures in which the project owner claims the credit. Conventional solar leases should not be treated as a blanket 48E pathway because the OBBB generally disallows the credit when qualifying solar property is rented or leased to a third party.
For commercial developers, July 4, 2026 is the critical begin-construction date. Most solar projects must use the Physical Work Test to establish beginning of construction under Notice 2025-42. Solar facilities with maximum net output of 1.5 MW AC or less may also use the Five Percent Safe Harbor. Projects that establish beginning of construction by the deadline can use the applicable continuity rules; projects beginning afterward generally must be placed in service by December 31, 2027.
GreenLancer supports fast, code-compliant engineering and design services to help contractors meet critical deadlines.
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FAQs on the Federal Solar Tax Credit
Is the federal solar tax credit still available in 2026?
Not for homeowners who purchase solar outright. The residential 25D solar tax credit ended December 31, 2025, under the One Big Beautiful Bill Act. The only remaining federal pathway for homeowners in 2026 is third-party ownership through solar leases, PPAs, or prepaid solar products, where the system owner may claim the Section 48E Investment Tax Credit and pass along some of the savings.
What is the difference between the 25D and 48E solar tax credits?
The 25D credit was the residential solar tax credit claimed directly by homeowners on their federal tax return. Section 25D was the residential clean-energy credit claimed directly by qualifying homeowners. Section 48E is a business tax credit that can apply to qualifying commercial projects and certain third-party-owned residential solar projects. PPAs may qualify depending on their structure, while the OBBB generally prevents 48E from being claimed when qualifying solar property is rented or leased to a third party.
Can I still claim the solar tax credit if I installed in 2025?
Yes. Homeowners who had their solar system fully installed and operational by December 31, 2025, qualify for the full 30% federal credit. You claim it by filing IRS Form 5695 with your federal tax return, and any unused credit can be carried forward to future tax years if it exceeds your current tax liability.
Does the solar tax credit apply to battery storage in 2026?
It depends on who owns the battery. Homeowner-owned battery storage installed after December 31, 2025 no longer qualifies for the Section 25D Residential Clean Energy Credit. Qualifying business- and third-party-owned energy storage may still qualify for Section 48E and is not subject to the same accelerated December 31, 2027 termination rule that applies to certain solar projects.
What is a solar lease or PPA, and does it qualify for a tax credit in 2026?
A solar PPA generally allows a third-party project owner to own the solar system while the homeowner purchases the electricity it produces. A qualifying PPA project may be eligible for Section 48E, with the eligible project owner claiming the credit. Solar leases are treated differently under the OBBB: the law generally prevents a taxpayer from claiming the credit when qualifying solar property is rented or leased to a third party.
What are the commercial solar tax credit deadlines under the Big Beautiful Bill?
Commercial solar projects generally must establish beginning of construction by July 4, 2026 to avoid the accelerated December 31, 2027 placed-in-service deadline. Notice 2025-42 generally requires the Physical Work Test, but solar facilities with maximum net output of 1.5 MW AC or less may also use the Five Percent Safe Harbor. Projects that establish beginning of construction by the deadline can rely on the applicable continuity rules.
What are PFE (FEOC) rules, and how do they affect solar projects in 2026?
PFE stands for prohibited foreign entity, the IRS's term for the material-assistance restrictions the solar industry commonly calls FEOC rules. Under the One Big Beautiful Bill, projects beginning construction in 2026 or later must limit components sourced from specified foreign entities, including certain China-, Russia-, North Korea-, and Iran-linked manufacturers. IRS Notice 2025-42 covers begin-construction standards, and IRS Notice 2026-15 provides interim guidance on calculating material assistance from a PFE.
Are there still solar incentives available for homeowners who missed the 2025 deadline?
Yes, though they vary significantly by location. State programs, utility rebates, net metering policies, and local incentives can still meaningfully improve the economics of going solar in 2026 even without the federal credit. The DSIRE database maintained by NC State University is the most comprehensive resource for finding active solar incentives by state and utility.
Does the solar tax credit still exist in 2026?
Not in the form it took before 2026. The direct-ownership federal credit for homeowners (Section 25D) expired for solar placed in service after December 31, 2025. It has not been repealed for third-party-owned systems: leases, PPAs, and commercial solar can still access a federal credit through Section 48E, subject to construction and placed-in-service deadlines.
Can I claim a solar tax credit in 2026 for a system installed in 2025?
Yes. If your solar system was fully installed and operational by December 31, 2025, you can claim the 30% Section 25D credit when filing your 2025 federal tax return in 2026, using IRS Form 5695, even though the credit itself has since expired for new installations.
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