Solar Tax Credit Eliminated in 2026 — What to Do Now

The 30% federal solar tax credit you were counting on? It's gone. As of January 1, 2026, the One Big Beautiful Bill Act (OBBBA) eliminated the Section 25D residential clean energy credit for homeowners who buy solar panels or battery systems with cash or a loan. That means a typical $30,000 solar installation just lost $9,000 in tax savings. A $15,000 battery system lost $4,500. Overnight.

If you were on the fence about going solar in 2025 and decided to wait, that decision just cost you thousands. But before you write off solar entirely, there's more to this story. State incentives still exist. Leases and PPAs still qualify for credits. And if you installed in 2025, you can still claim the old credit on your tax return. Let's break down exactly what happened, who's affected, and what your best moves are right now.

What Happened: The OBBBA Killed the Solar Tax Credit

The Inflation Reduction Act (IRA) of 2022 was supposed to keep the 30% residential clean energy tax credit in place through 2032, then gradually phase it down. Homeowners who bought solar panels, battery storage, or other qualifying clean energy systems could claim 30% of the total cost as a dollar-for-dollar credit on their federal income taxes.

That changed with the One Big Beautiful Bill Act. Signed into law, the OBBBA repealed Section 25D of the tax code — the provision that gave homeowners the residential clean energy credit. The effective date was January 1, 2026. Any system purchased and installed after that date no longer qualifies for the federal credit.

To be clear: this isn't a phase-down or a reduction. The credit for homeowner-purchased systems is fully eliminated. If you bought solar panels with cash or financed them with a loan in 2026, you get zero federal tax benefit.

What the Credit Was Actually Worth

The numbers are significant. Here's what homeowners lost:

The credit covered solar panels, battery storage systems, solar water heaters, geothermal heat pumps, fuel cells, and small wind turbines. There was no cap on the credit amount — 30% of whatever you spent, applied directly against your tax liability. For a homeowner spending $30,000 on a solar installation, that was $9,000 off their federal taxes. For a $12,000-$15,000 battery backup system, that was $3,600 to $4,500 in savings.

The credit was also rollable — if your tax liability was lower than the credit amount, you could carry the remaining balance forward to future tax years. That flexibility made solar accessible to a much wider range of homeowners.

Who's Affected

The elimination hits three groups the hardest:

Homeowners who were planning to buy in 2026

If you got quotes in late 2025 and decided to wait until spring 2026 to pull the trigger, you just lost thousands. The timing is painful, but it's done. Your options now are state incentives, leasing, or buying at full price (which may still make sense — more on that below).

Homeowners who wanted to add battery storage

Battery systems were one of the fastest-growing segments of residential solar. A home battery backup provides energy independence and protection against outages. But without the credit, a $15,000 battery system now costs the full $15,000 instead of an effective $10,500. That pushes payback periods out significantly.

Middle-income homeowners in moderate-sun states

In states with strong sun and high electricity rates (California, Arizona, Texas), solar still pencils out without the credit. But in states with moderate sun and lower rates, the credit was often the factor that tipped the math from "maybe" to "yes." Without it, some of those installations no longer make financial sense — at least not as a cash purchase.

The Lease/PPA Loophole: Why It Still Works

Here's the part most people miss. The OBBBA eliminated the residential credit (Section 25D), but the commercial investment tax credit (Section 48E) is still alive — and it runs through the end of 2027.

Why does that matter for homeowners? Because when you lease solar panels or sign a Power Purchase Agreement (PPA), the solar company owns the system. They're a commercial entity, so they claim the Section 48E credit. They then pass some of those savings to you through lower monthly lease payments or a lower per-kilowatt-hour rate.

Purchase Method	Federal Credit	Available Until
Cash purchase	None (eliminated)	N/A
Loan / financing	None (eliminated)	N/A
Solar lease	Yes (Section 48E)	End of 2027
PPA (Power Purchase Agreement)	Yes (Section 48E)	End of 2027

The trade-off with leasing is that you don't own the system. You won't build equity in the panels, and you're locked into a contract (typically 20-25 years). But the upside is real: zero upfront cost, lower monthly electricity bills from day one, and the solar company handles maintenance, monitoring, and repairs.

For homeowners who can't absorb the full cost of a system without the tax credit, a lease or PPA is now the most practical path to solar. Just make sure to lock in a rate before the Section 48E credit expires at the end of 2027.

State Incentives That Still Exist

The federal credit is gone, but several states still offer substantial incentives. If you live in one of these states, the financial picture may be better than you think.

California — Up to $14,850 for Battery Storage

California's Self-Generation Incentive Program (SGIP) offers rebates of up to $14,850 for residential battery storage systems. The program prioritizes low-income households and those in high-fire-risk areas, but it's open to all California residents. Combined with California's high electricity rates (averaging over 30 cents/kWh), solar plus storage remains a strong financial move here — even without the federal credit.

Connecticut — Up to $16,000 Combined

Connecticut offers one of the most generous state incentive packages in the country. Between solar rebates and battery storage incentives, homeowners can receive up to $16,000 in combined state incentives. Connecticut also has a strong net metering program that credits you for excess electricity you send back to the grid.

Colorado — Up to $5,000

Colorado offers state tax credits and utility rebates that can total up to $5,000 for qualifying solar installations. Some Colorado utilities also offer additional incentives for battery storage. Check with your local utility — Xcel Energy, for example, has its own solar incentive programs.

New York — NYSERDA Rebates

The New York State Energy Research and Development Authority (NYSERDA) offers rebates for both solar and battery installations. The amounts vary by region and system size, but they can significantly reduce your net cost. New York also has strong net metering policies and some of the highest electricity rates in the country, which improves the payback math.

Other States Worth Checking

Many other states offer some form of solar incentive — rebates, tax credits, property tax exemptions, or enhanced net metering. States like Massachusetts, New Jersey, Maryland, Illinois, and Minnesota all have active programs. Your best move is to check the DSIRE database (Database of State Incentives for Renewables & Efficiency) for current programs in your state.

How to Claim the 2025 Credit (If You Installed Last Year)

If you installed a solar or battery system in 2025, you're in luck — the credit was still active for the entire 2025 tax year. Here's exactly how to claim it.

One important detail: the credit applies to the year the system was placed in service, not when you signed the contract or made the down payment. "Placed in service" means the system was fully installed, inspected, and operational. If your installation dragged into January 2026, you may not qualify — consult a tax professional to review your specific situation.

Don't leave this money on the table. If you installed in 2025 and haven't filed yet, this is potentially thousands of dollars sitting in your tax return. The regular filing deadline is April 15, 2026. If you need more time, file Form 4868 for an automatic extension to October 15, 2026.

What About Energy Efficiency Credits (Section 25C)?

The solar credit wasn't the only energy incentive affected by recent legislation. The Section 25C Energy Efficient Home Improvement Credit — which covered heat pumps, insulation, windows, doors, and electrical panel upgrades — may also be impacted.

Previously, Section 25C offered up to $3,200 per year in tax credits:

• $2,000 for heat pumps and heat pump water heaters
• $1,200 for insulation, windows, doors, and electrical panel upgrades

The status of these credits is still evolving. Some may remain partially available while others may be fully repealed. If you're planning any energy efficiency upgrades, check with a tax professional before assuming the credit still applies. The IRS website and your tax software should have the most current guidance by the time you file.

Regardless of credits, energy efficiency upgrades still save money on your monthly bills. A smart thermostat pays for itself within a year through reduced heating and cooling costs. Insulation and air sealing reduce your energy consumption permanently. The credit was a bonus — the real value is in the ongoing savings.

Is Solar Still Worth It Without the Credit?

This is the big question. And the honest answer is: for many homeowners, yes — but the math changed.

The case for solar without the credit

Solar panel prices have dropped dramatically over the past decade. A system that cost $50,000 in 2014 might cost $25,000-$30,000 today. Meanwhile, electricity prices keep climbing — up 5-18% in 2026 alone, with no signs of slowing. Every kilowatt-hour your panels generate is a kilowatt-hour you don't buy at ever-increasing rates.

A typical rooftop solar system lasts 25-30 years. Even with a longer payback period (8-12 years instead of 6-8), that's still 15-20+ years of essentially free electricity. In states with high electricity rates — California, Connecticut, Massachusetts, New York, Hawaii — the math works even without the credit.

The case for waiting or leasing

If you're in a state with moderate electricity rates and limited state incentives, the payback period without the federal credit might stretch to 12-15 years. That's still a positive investment, but it ties up significant capital for a long time. In that scenario, a lease or PPA makes more sense — you get solar benefits with zero upfront cost, and the leasing company absorbs the risk.

Another option: start small. A portable solar panel or a portable power station lets you offset some electricity costs without a five-figure investment. You can charge devices, run small appliances, and power essentials during outages. Check our portable solar panel guide for the best options.

Your Action Plan: What to Do Right Now

Regardless of where you stand, here's a practical timeline.

The Bigger Picture: Energy Independence Is Still the Goal

Losing the federal tax credit stings. There's no way around that. For many homeowners, it was the difference between "I can afford this" and "I'll wait." But the underlying reality hasn't changed: electricity prices are rising, grid reliability is uncertain, and energy independence is more valuable than ever.

The credit made solar cheaper. But solar was already getting cheaper on its own. Panel prices have dropped over 70% in the last decade. Battery technology keeps improving. And every year you wait is another year of paying full price for electricity from a grid that charges more every quarter.

The credit is gone, but the mission isn't. Whether you lease, buy with state incentives, start small with portable solar, or focus on efficiency first — the path to energy freedom is still open. It just looks a little different than it did last year.

What to Read Next

• Home Solar & Battery Backup for Beginners — everything you need to know about going solar, with or without the tax credit
• Best Portable Solar Panels for Emergencies — affordable solar options that don't require a rooftop installation
• Electricity Prices Are Rising Up to 18% in 2026 — why your bill is climbing and 9 ways to fight back
• DIY Home Energy Audit: Find Where Your Money Is Leaking — the step-by-step guide to auditing your home in one afternoon

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