The Federal Solar Tax Credit: What’s New in 2026

The federal solar tax credit has long been the most significant credit available to homeowners in the United States, but the landscape changed overnight with the passage of the One Big Beautiful Bill (OBBB) in July 2025. If you are a homeowner looking to go solar in 2026, you need to know that the regulatory framework has changed. The traditional 30% tax credit for purchased systems is gone, new "domestic content" rules have arrived, and the clock is ticking on the remaining lease incentives.

Important deadlines:

• December 31, 2025: This was the final date to "place in service" a system to qualify for the 30% homeowner-owned tax credit (Section 25D).

• April 15, 2026: This is the deadline to file the 2025 tax return and claim the credit for any systems installed before the 2025 year-end cutoff.

• July 4, 2026: Providers must "begin construction" on Lease or PPA projects by this date to qualify for the four-year "Safe Harbor" completion window (Section 48E - the business/lease credit). 

• December 31, 2027: This is the final "place in service" deadline for all solar projects that did not meet the 2026 construction-start requirement (Section 48E).

Disclaimer: SolarReviews does not provide tax or accounting advice. This has been prepared for informational purposes only. Please consult a tax professional.

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What is the solar tax credit?

The federal solar tax credit, formally known as the Residential Clean Energy Credit, is an incentive you can earn when installing solar panels or other clean energy equipment on your property. The tax credit equals 30% of installation costs and can reduce what you owe in federal income taxes by thousands of dollars.

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When does the federal tax credit expire?

For nearly two decades, the solar tax credit followed a predictable step-down schedule, but that changed on July 4, 2025. With the signing of the One Big Beautiful Bill (OBBB), the "long-term" timeline for residential solar was significantly accelerated.

The 30% tax credit for homeowner-owned systems (25D) did not step down to 26% or 22%—it officially expired on December 31, 2025.

If your system was not installed and operational by the end of 2025, you are no longer eligible for the personal income tax credit. However, a window remains open for Solar Leases and PPAs (Section 48E), which are eligible for a 30% credit through December 31, 2027, provided construction begins by July 4, 2026.

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How to calculate the federal solar tax credit in 2026?

For the tax year 2025, the federal solar tax credit equals 30% of solar installation costs, directly reducing your federal income tax liability.

Here’s an example of how the solar tax credit works: If you installed a home solar power system for $20,000, you could claim a tax credit of $6,000. 

$20,000 solar installation costs X 30% = $6,000 tax credit value

So, if your tax liability was $15,000, the $6,000 tax credit would reduce what you owe to just $9,000.

$15,000 income tax liability - $6,000 solar tax credit = $9,000 final bill

The tax credit is nonrefundable, meaning it can’t reduce your full tax bill to less than $0, and the federal government won’t give you a refund if your credit amount exceeds your liability. However, any remaining credit value can roll over to the subsequent tax year if the value of your tax credit is greater than what you owe. 

Let’s use another example: If you installed the same system above and got a $6,000 tax credit, but you only owed $5,000 in taxes, your tax liability would be reduced to $0. The remaining $1,000 from your credit can be applied to your taxes next year.

$5,000 tax liability - $6,000 tax credit = $1,000 credit roll-over to apply to next year’s taxes

How much is the federal solar tax credit worth?

Our calculations for the average cost of solar panels show you should expect to pay $21,816 for a typical 7.2-kilowatt system. That means the average solar tax credit is $6,544 (30% of $21,816). 

However, your solar tax credit will vary based on how much you spend on solar and your tax liability. Liability simply means how much you owe in total income taxes for the year. 

Will the 2026 solar tax credit increase your tax refund?

Depending on what you owe and how much you withheld for the year, you may see a higher tax refund when you claim the federal solar tax credit, depending on what you owe and how much you withheld for the year. 

If you have already withheld enough money from your paychecks to cover what you owe, you will earn whatever refund you would usually get when filing your taxes, plus the tax credit value.

A Certified Personal Accountant and Tax Manager Joseph Kleczynski from Petrucelli, Piotrowski & Co. Inc gave us an example:

“Let’s say you earned a tax credit of $6,000. If you owed $20,000 in taxes but withheld $25,000 throughout the year on your paychecks, your refund would be $11,000: $6,000 from the federal tax credit and $5,000 from the income taxes.”

However, you won’t always get the tax credit back in your refund check. If you didn’t withhold enough money throughout the year to cover your liability, the credit will simply lower your liability. 

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What is the investment tax credit (48E)?

The federal solar tax credit for businesses and third-party owned solar systems got a major update in 2026. It's now officially called the Clean Electricity Investment Tax Credit (ITC) under Section 48E, and while it offers a base credit of 6% of your system cost, there are some important new rules you need to know about.

• It can be increased. Credit can be increased by five times (up to 30%) for facilities meeting prevailing wage and apprenticeship requirements.

• It's no longer just for solar. Section 48E is "technology neutral," which means it applies to any zero-emission energy project, including solar, wind, and even standalone battery storage systems.

• There is a deadline. Here's the big change: wind and solar projects must now be fully installed and operational by December 31, 2027 to qualify for the credit. This replaced the longer timeline that was originally part of the Inflation Reduction Act, so if you're considering a commercial solar installation, time is of the essence.
  There is one major exception to the 2027 deadline. If a solar provider begins construction on your project by July 4, 2026, they qualify for a four-year "Safe Harbor" window. This means the project can be finished as late as 2030 and still receive the full 30% credit.

• Labor standards matter. For larger projects (over 1 megawatt), you'll need to meet prevailing wage and apprenticeship requirements to get the full 30% credit. If you don't meet these standards, the credit drops all the way down to just 6%—a significant difference that could make or break your project's ROI.

Can you get bonus credits?

Yes! You can still stack bonus credits on top of the base 30%, but the requirements are stricter in 2026. Here's how you can boost your credit:

• Domestic content bonus (+10%): Half of all manufactured products in your solar system must be made in the United States to qualify.

• Energy communities bonus (+10%): Projects located in areas that historically relied on fossil fuel industries or on brownfield sites can still earn this bonus.

• Low-income bonus (+10-20%): If your project serves low-income households or tribal lands, you may qualify for an additional boost, though these credits are limited and require a competitive application process with the IRS.

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2026 federal solar tax credit qualification checklist

If you are filing your taxes in 2026 for a system installed last year, use this checklist to ensure you meet the final requirements of the Section 25D credit before it was terminated by the One Big Beautiful Bill (OBBB).

• The "placed in service" deadline: Your system must have been fully installed and operational by December 31, 2025. Under the OBBB, simply signing a contract or paying a deposit in 2025 is not enough; the IRS defines the "expenditure" as being made only when the physical installation is complete.

• You must own the system: To claim the credit on your 1040, you must have purchased the system with cash or a solar loan. If you chose a solar lease or a power purchase agreement (PPA) in 2025, you are not eligible to claim the credit.

• Eligible equipment: Qualifying 2025 equipment includes solar PV panels, solar shingles, solar water heaters, residential wind turbines, geothermal heat pumps, and fuel cells.

• Battery storage capacity: If you installed battery backup, it must have a capacity of at least 3 kilowatt-hours (kWh) to qualify for the 30% credit.

• Primary or secondary residence: The system must be installed on a home you live in (house, condo, houseboat, or mobile home). Rental properties do not qualify for this personal credit unless you also live in the home for a portion of the year.

• It must be claimed on the original installation of the equipment: If you remove the panels and put them on another property or install used solar panels, you cannot reclaim the tax credit. It must be the first time the panels are used. You can, however, claim the tax credit for any costs incurred when adding solar panels to an existing system.

• Manufacturer "qualified" status: For 2025 claims, your equipment must come from a "Qualified Manufacturer." Ensure your installer has provided the necessary Manufacturer Certification Statement or the 4-digit QM code required for Form 5695.

• Tax liability requirement: Since this is a non-refundable credit, you must have a federal tax liability to use it. However, if your 2025 tax bill is lower than your credit, you are still eligible to roll the remaining balance into 2026 and beyond.

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How to file for the federal solar tax credit incentive?

Claiming the tax credit is easy! Simply fill out IRS Form 5695 when you file your annual taxes. According to the Internal Revenue Service (IRS), claim the credit for the tax year your system is "placed in service" (typically when it receives Permission to Operate (PTO) from your utility—not the purchase date). For example, panels bought in December 2025 but PTO'd in 2026 would be claimed on your 2026 return (though 2026 installations are ineligible post-OBBB).

Here are the basic steps for 2025 claims (filed in 2026):

1. Fill out Line 1 (Part I) of Form 5695 with total qualified solar costs;  add storage and other equipment on the corresponding lines.

2. Calculate 30% credit (e.g., Line 6b).

3. Include other credits like energy-efficient home improvements (Part II).

4. Check carryforward/rollover on relevant lines (Line 14/15  worksheet).

5. Add the final tax credit value to IRS Form 1040 to calculate your final tax liability. 

When using a tax software program, you’ll likely have to search for tax Form 5695 in the system, add it to your other tax documents, and input relevant information, like the cost of the system. The software will handle the calculations and determine your final tax liability. If using a tax professional, you can provide them with the cost of your system, and they’ll handle the rest. 

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What costs are eligible for the federal solar tax credit?

Most of the costs associated with installing solar panels are covered by the federal tax credit, including: 

• Equipment: The cost of solar equipment, including solar panels, wiring, racking, and inverters, is eligible for the tax credit. Home battery installation costs, even if the battery is installed without solar panels, also qualify for credit. 

• Contract labor: Labor costs associated with site preparation, planning, and installation qualify for the tax credit.

• Permitting and inspection costs: Any permitting or inspection costs incurred when installing solar panels are covered by the tax credit. 

• Sales tax: The tax credit covers any sales tax associated with the above costs.

However, some costs are not eligible for the tax credit. For example, the credit will not cover roof replacements and extended warranty coverage costs. Most notably, financing costs are not included when calculating your tax credit value.

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Does the federal tax credit work with other local or utility solar incentives and rebates?

You can combine the federal solar tax credit with other incentives like state solar tax credits to maximize your solar savings. However, whether it’s a utility rebate, a state tax credit, or a performance-based incentive can impact how the federal solar tax credit is calculated. Let’s take a closer look.

Utility rebates

In most cases, if you’re getting a rebate from your utility company, the value of the utility rebate will be subtracted from your total costs before the federal tax credit is calculated. This reduces the value of your federal tax credit, but you benefit from the additional incentive. 

For example, let’s say you install a solar system for $20,000 and get a $1,000 rebate from your utility company. Instead of calculating the tax credit with the initial $20,000 cost, it would be based on the price after subtracting the utility rebate. In this case, that’s $19,000.

You can use the following formula to calculate how much your tax credit will be worth after a utility incentive:

30% x (Total system cost - Utility rebate amount) = Federal tax credit value

State solar tax credits

Some states offer solar tax credits that work similarly to the federal tax credit. The state tax credit will be worth a certain percentage of the solar installation costs and reduce taxpayers' state income tax liability.

A state tax credit won’t impact the value of your federal tax credit. However, claiming a state solar tax credit will change the amount of taxable income you report on your federal taxes.

The following table outlines where state-specific solar tax credits are available:

State	Tax credit
Arizona	25% of costs, up to $1,000; Plus utility rebates
Hawaii	35% of costs, up to $5,000
Massachusetts	15% of costs, up to $1,000; Plus SMART program
New York	25% of costs, up to $5,000; Plus NY-Sun rebates
South Carolina	25% of costs, up to $3,500/year; 10-year carryforward
Iowa	15% of costs, up to $5,000

Performance-based incentives

Performance-based incentives are paid to solar homeowners based on how much energy their solar system produces.  These incentives likely will not change the value of your federal tax credit, but if they are considered additional income, they may impact your taxes overall.

Sometimes, these incentives may be listed as a line item on your electricity bill; other times, you’ll receive a separate payment from your utility company.

Some states have Solar Renewable Energy Certificates (SRECs), where a solar owner earns a certificate for every 1,000 kWh of solar energy they produce. These can then be sold to utilities or SREC aggregators and earn you extra money.

Sometimes, SRECs can be purchased upfront by the installer. If this is the case, you should consult a tax professional about how that could impact your solar tax credit value.

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Is it too late for solar?

No, but the rules have changed!

For a long time, the government gave a "thank you" check to anyone who bought solar panels. As of January 1, 2026, they stopped doing that for homeowners who buy their own systems. But they didn't stop helping entirely.

• If you want a tax credit today: You usually have to lease your panels (rent them) instead of buying them. The solar company gets the tax break and uses it to give you a much lower monthly power bill.

• If you already have solar: If you finished your project in 2025, make sure to claim your credit on your taxes this April. If you have "leftover" credit from last year, you can still use it this year!

Waiting won't make it cheaper. Electricity prices from the power company are still going up, and the remaining lease deals are only guaranteed for a little while longer. If you want to save money on power, the best time to start is right now.

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Federal solar tax credit FAQ