Solar Tax Credits in 2026: The Complete Guide to What Changed

Few topics in residential solar generate as much confusion in 2026 as the federal tax credit. Homeowners read that "the 30% credit is gone," then see a quote that still subtracts a 30% federal credit from the price. Both can be technically true — and that is exactly the problem. The One Big Beautiful Bill Act (OBBBA) split the old solar incentive into two very different credits with two very different sets of rules. This guide explains what actually changed, which credit applies to which deal, and what it means for your roof.

The Quick Answer

The Section 25D Residential Clean Energy Credit — the 30% personal tax credit a homeowner claimed on an owned system — expired December 31, 2025. It is not available for any owned residential system placed in service after that date. A separate credit, Section 48E, was available at 30%, but it applied to leases, power-purchase agreements (PPAs), commercial properties, and rental properties, and it required construction to begin before July 4, 2026 (a Saturday; under IRC 7503 the effective deadline rolled to Monday, July 6, 2026) — that deadline has now passed, so only grandfathered pre-deadline projects can still claim the credit. If you buy and own a system for your primary residence in 2026, there is no federal credit. If you lease, the installer claims the 48E credit and passes some of the value to you through lower payments.

What OBBBA Actually Changed

OBBBA (Public Law 119-21, signed July 4, 2025) rolled back several clean-energy incentives created by the Inflation Reduction Act. According to theIRS, the 25D credit equaled 30% of qualified property cost — solar panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage of at least 3 kWh — installed from 2022 through December 31, 2025. The IRS states plainly that the credit is“not available for any property placed in service after December 31, 2025.”The cutoff is tied to placed in service, meaning the system must be installed, interconnected, and operating — not merely ordered or under contract.

OBBBA did not eliminate every solar credit, however. It leftSection 48E, the technology-neutral Clean Electricity Investment Credit, intact for the commercial and third-party-owned side of the market. That survival is the single most important fact for homeowners to understand, because it is the reason solar did not simply stop on January 1, 2026. For a precise, personalized verdict on which credit applies to your situation, run ourITC Status Check or theTax Credit Eligibility Checker.

Section 25D vs Section 48E: The Core Difference

The two credits look identical on paper — both are 30% — but they are claimed by different people under different rules:

• Section 25D (expired for new owned residential): Apersonal tax credit the homeowner claimed onIRS Form 5695. It was non-refundable, meaning it could reduce your tax bill to zero but could not generate a refund by itself; unused amounts carried forward. Gone for systems placed in service after December 31, 2025.
• Section 48E (active): A businessinvestment tax credit claimed on IRS Form 3468. It covers leases, PPAs, commercial properties, rental properties, and tax-exempt entities (which can use a direct-pay election). It hasno scheduled step-down, but projects mustbegan construction before July 4, 2026 and be placed in service within four years of that start date.

The practical upshot: the question is no longer "do I get 30% back?" but "who claims the 30%, and under which code section?" If you want a side-by-side breakdown for your own numbers, theOBBBA Deadline Trackerwalks through the construction-start rules and required documentation.

The Lease/PPA Passthrough: How 48E Reaches Homeowners

Because 48E is a business credit, a homeowner cannot claim it on a personal return for an owned primary-residence system. But third-party ownership (TPO) — leases and PPAs — creates a bridge. In a lease or PPA, the installer or developer owns the system and claims the 30% 48E credit on their business taxes. They then pass part of that benefit to you throughlower monthly payments, typically around 10–20% below your utility bill. You file no tax forms related to the credit.

This passthrough is why the residential market did not collapse when 25D expired. In the first quarter of 2026, residential solar still grew year-over-year, and that growth was entirely funded by third-party ownership capturing the 48E credit — while the cash-buyer segment contracted sharply (Enphase, a leading residential equipment supplier, reported revenue down roughly 28% year-over-year). The financing structure, not just the hardware, now drives the economics.

There was a catch, and it was a hard deadline. To claim 48E, construction had to begin before July 4, 2026. There are now two ways to satisfy this: the Physical Work Test(actual physical work of a significant nature, on-site or off-site under a binding written contract), or the 5% expenditure safe harbor — which was RESTORED on June 6, 2026 when a federal court vacated IRS Notice 2025-42 (Oregon Environmental Council v. IRS, No. CV-25-4400). The IRS may appeal. Permitting, financing, and planning do not count.

What About Battery Storage?

Battery storage followed the same split. Under the expired 25D, battery storage of at least 3 kWh qualified for the 30% credit on an owned residential system — that path is now closed for new owned systems. Under 48E, battery storage still qualifies at 30%, including standalone storage and storage paired with solar, subject to the same ownership and construction-start rules as any other 48E project. That means a leased battery (or a battery on a commercial or rental property) can still earn the credit if construction began before July 4, 2026. We cover the storage specifics in depth inBattery Storage Tax Credits After 2025.

Grandfathering: What If You Installed In 2025?

If your system was placed in service on or before December 31, 2025 — meaning installed, interconnected, and operating, with Permission to Operate from your utility — you remain eligible for the 30% 25D credit. FileIRS Form 5695 with your return. The credit applies to the total installed cost, including panels, inverters, mounting, wiring, and permitting fees. OBBBA's phase-out only affects systems placed in service after the cutoff.

State Incentives Step In Where Federal Stepped Back

With the federal floor removed for owned residential systems, state and local incentives now carry far more weight. Some states moved aggressively to fill the gap — New York's FY2027 budget significantly expanded rooftop and community solar commitments, according to SEIA. Other states continue to offer rebates, property-tax exemptions, SREC markets, and performance incentives. The result is that the value of going solar in 2026 varies even more by ZIP code than it did before OBBBA. To see exactly what is available where you live, use theIncentive Finder.

What This Means For You

The decision tree for 2026 is clearer than the online confusion suggests:

1. If you buy and own a system for your primary residence:Assume no federal credit. Budget for the full system cost. Any quote showing a 30% federal credit on an owned 2026 residential system is using an expired incentive — see ourguide to spotting expired ITC claims.
2. If you lease or sign a PPA: The installer can still claim 30% under 48E, and you benefit through lower payments. Make sure construction began before July 4, 2026 and ask for FEOC (Foreign Entity of Concern) compliance documentation for the panels.
3. If you own a rental or commercial property: 48E is available directly to you at 30%, plus bonus credits (up to +10% domestic content, +10% energy community) and MACRS depreciation.
4. If you installed in 2025 or earlier: You are grandfathered into 25D. File Form 5695.

The credit rules changed, but the credit did not disappear — it shifted from a homeowner credit to a financing-structure credit. The homeowners who win in 2026 are the ones who understand that distinction and price both paths honestly before signing.

Continue Reading This Series

• Can You Still Save With Solar After the Tax Credit Expired? — the yes/no answer with worked payback math for the post-credit era.
• Battery Storage Tax Credits After 2025 — owned vs leased storage, and which still qualifies.

Sources

• Internal Revenue Service,Residential Clean Energy Credit (Section 25D) — official credit terms and the December 31, 2025 cutoff.
• IRS Notice 2025-42 and Oregon Environmental Council v. IRS, No. CV-25-4400 (D.D.C. June 6, 2026) — Physical Work Test and restored 5% safe harbor for Section 48E.
• Public Law 119-21 (One Big Beautiful Bill Act), signed July 4, 2025 — clean-energy credit phase-outs.
• Solar Energy Industries Association & Wood Mackenzie,U.S. Solar Market Insight, Q2 2026 — Q1 2026 residential growth and TPO-funded market data.