Federal Solar Tax Credit: Ended for 2026 — What It Was & What Remains
⚠️ 2026 update: The 30% federal Residential Clean Energy Credit (Section 25D) ended for systems placed in service after 31 December 2025, under the One Big Beautiful Bill Act signed in July 2025. For a 2026 homeowner-owned system, the federal credit is now 0%. If your system was installed and switched on by the end of 2025, you can still claim the 30% on your 2025 tax return (the how-to below still applies to you). Wondering whether solar still makes sense without it? See Are solar panels worth it in 2026?
For over a decade, the 30% federal Investment Tax Credit (ITC) was the single biggest solar incentive for US homeowners — worth an average of $7,500. Here's how it worked, who can still claim it on a 2025 return, and — crucially for 2026 — what incentives remain now that it has ended.
Muhammad founded KilowattKit after spending hours trying to decode confusing electricity bills and realising there were no clear, jargon-free tools for ordinary homeowners. He researches energy rates, solar payback, EV charging, and heat pump economics across the US, UK, Canada, and Australia — sourcing every figure directly from official government and regulatory data.
Federal ITC at a Glance
How the ITC Works
The solar Investment Tax Credit is a dollar-for-dollar reduction in your federal income tax bill. Unlike a rebate (which gives you money back), a tax credit reduces what you owe to the IRS. If your credit is larger than your tax liability in a given year, you can carry the remainder forward to the following year.
Worked example: 8kW system in Texas
What Qualifies for the 30% Credit
✅ Eligible costs
- Solar panels (any brand or type)
- Inverters and microinverters
- Mounting hardware and racking
- Wiring and electrical components
- Battery storage (≥3 kWh capacity)
- Installation and labor costs
- Permitting and inspection fees
- Sales tax on eligible equipment
❌ Not eligible
- Roof repairs done separately
- Extended warranties or service plans
- Grid-scale or off-site solar
- Batteries under 3 kWh capacity
- Leased systems (the leasing company claims it)
- Rental properties you don't occupy
Federal Solar ITC Timeline (Section 25D)
| Year(s) | Residential credit rate | Credit on $25k system | Status |
|---|---|---|---|
| 2022 – 31 Dec 2025 | 30% | $7,500 | ✅ Claimable if placed in service by 31 Dec 2025 |
| 2026 onward | 0% | $0 | ❌ Section 25D ended for homeowners |
The One Big Beautiful Bill Act (July 2025) ended the residential Section 25D credit for systems placed in service after 31 December 2025 — cutting short the earlier Inflation Reduction Act schedule, which would have held 30% through 2032 before tapering. Systems switched on by 31 December 2025 can still claim the 30% on the 2025 return. The commercial ITC (Section 48E, for business-owned systems and the panels behind leases/PPAs) has a 6% base rate that can rise to 30% when prevailing-wage and apprenticeship requirements are met. Verify at irs.gov before filing.
How to Claim the Credit (Step by Step)
This applies only if your system was placed in service by 31 December 2025 — you claim it on your 2025 federal return. Systems switched on in 2026 or later do not qualify for the residential credit.
Keep your signed contract, installer invoice, and proof of payment. Note the full system cost including all eligible components.
Enter your total qualified solar costs on Part I of Form 5695 (Residential Energy Credits). Line 6a is the total system cost; the 30% credit appears on line 6b.
The credit from Form 5695 flows to Schedule 3 (Line 5), then to your Form 1040. It reduces your total tax liability, not your taxable income — dollar-for-dollar.
If the credit exceeds your tax liability, the remainder carries forward to next year's return. Note this on Form 5695 and track the carryforward amount.
⚠️ Key things to know
- You need tax liability. The ITC is non-refundable — it can reduce your tax bill to zero but won't generate a refund beyond that. If you have no federal income tax liability, you cannot use the credit (though the carryforward still applies).
- Leased systems don't qualify. If you lease your solar panels or enter a Power Purchase Agreement (PPA), the leasing company owns the system and claims the ITC. Make sure you're buying, not leasing.
- State taxes are separate. The federal ITC only applies to federal income tax. Some states have their own separate solar tax credits — check your state's rules.
- Use a tax professional. While Form 5695 is straightforward, a CPA familiar with energy credits can ensure you capture every eligible dollar and handle carryforward correctly.
With the federal 30% credit now ended for 2026, state and utility incentives matter more than ever — many states still offer rebates, income tax credits, SRECs, and property/sales tax exemptions that cut your cost. These are now the main way to bring a 2026 system's price down.