The federal residential solar tax credit (Section 25D) expired December 31, 2025 under the One Big Beautiful Bill Act (OBBBA). Homeowners can no longer claim the 30% ITC on residential installations placed in service in 2026 or later. However, solar leases and PPAs (third-party owned systems) may still offer savings through the commercial 48E credit passed to lessors. Check your state for available rebates and incentives.
What changed on December 31, 2025
The OBBB Act, enacted in 2025, repealed the Section 25D residential clean-energy credit for systems placed in service after December 31, 2025. Under the prior Inflation Reduction Act framework, residential solar systems and standalone batteries ≥3 kWh qualified for a 30% income-tax credit through 2032. That credit is now gone for new residential direct-purchase installations.
- Residential 25D credit: Expired Dec 31, 2025. No longer available for residential direct purchases.
- Commercial 48E credit: Still active, with its own statutory begin-construction deadline of July 4, 2026 for full 30% value. The 48E credit applies to business, industrial, and agricultural projects — and to residential systems owned by a third party (leases and PPAs).
- Legacy systems: If you placed your residential system in service on or before December 31, 2025, you can still claim the 30% credit on IRS Form 5695 with your 2025 return; unused portions carry forward up to 5 years.
What still applies in 2026
Even without the federal residential credit, the rest of the solar incentive landscape is largely intact:
- State tax credits and rebates — NY-Sun, NJ SuSI, MA SMART, IL Adjustable Block, MD residential grant, AZ $1,000 credit, CA SGIP, and many others remain in force.
- SREC markets — NJ, MA, MD, IL, PA, DC, OH continue to issue and trade SRECs.
- Net metering — Where available, full-retail or partial-retail net metering still drives a large share of solar payback.
- Property tax exemptions — Most states exclude the added value of a solar system from property tax reassessment.
- USDA REAP grants — Up to 50% of project cost (capped) for agricultural and rural small businesses.
Leases and PPAs: where 48E now matters most for homeowners
The most consequential change for many homeowners is that direct purchase and lease/PPA now have very different federal-credit treatment. Under a lease or PPA, the installer (or a partnering financier) owns the system and can still claim the commercial 48E credit, which typically gets reflected in a lower monthly customer payment than a comparable 25D-era lease.
- Direct purchase: You own the system. No federal credit in 2026; state and utility programs only.
- Lease: Installer owns the system. The lessor claims 48E (subject to deadline). You pay a fixed monthly lease, typically reduced by the captured credit.
- PPA: Installer owns the system. The system owner claims 48E. You pay per kWh produced, typically below retail rates.
For 2026 homeowners deciding between direct purchase and lease/PPA, the math has shifted: leases and PPAs are relatively more attractive than they were under the 25D regime because they still benefit from a federal credit (indirectly), while direct purchases do not.
What homeowners should ask installers in 2026
- Does your quote assume any federal credit on a direct purchase? It should not — Section 25D expired Dec 31, 2025.
- If proposing a lease or PPA, what 48E credit is the system owner capturing, and how is it reflected in my monthly payment?
- What state rebates, tax credits, SRECs, and net-metering programs apply to my address?
- What is the 25-year ROI on a direct purchase vs. lease vs. PPA, modeled with my actual electric rates?
Looking for a vetted installer who quotes accurately under the 2026 rules? Get matched with up to five local installers — free, no obligation — or browse the directory by state.
Frequently Asked Questions
Is the federal solar tax credit gone in 2026?
The federal residential solar tax credit (Section 25D) expired December 31, 2025 under the OBBB Act. Homeowners can no longer claim the 30% ITC on residential direct-purchase installations. However, the commercial 48E credit still applies — including to third-party-owned residential systems (leases and PPAs), where the system owner claims 48E and typically passes the savings through in monthly pricing.
Can I still claim the 30% credit if my system was installed in 2025?
Yes. Systems placed in service on or before December 31, 2025 remain eligible for the 30% Section 25D credit. File IRS Form 5695 with your 2025 return; unused portions carry forward up to 5 years.
Is solar still worth it without the federal residential credit?
For many homeowners, yes — especially where retail electricity rates are high, full-retail net metering exists, or strong state SREC/rebate programs apply (NJ, MA, MD, IL, NY, CA). Payback periods have stretched from 6–12 years under 25D to roughly 9–15 years on a 2026 direct purchase. Leases and PPAs may pencil out faster because they still benefit from the commercial 48E credit indirectly.
What is the commercial 48E credit and how does it relate to residential solar?
Section 48E is the commercial Investment Tax Credit, claimed by businesses, developers, and other system owners. For residential homeowners, 48E becomes relevant when the system is owned by a third party — under a lease or PPA — because the lessor or system owner can claim 48E and typically passes the savings through as lower customer pricing. 48E carries a statutory begin-construction deadline of July 4, 2026 for the full 30% rate.