Solar Tax Credit Expiration: What Ended, Who Can Still Claim It, and the New 2026 Math

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What Exactly Ended on December 31, 2025

The federal residential solar credit — the Residential Clean Energy Credit under IRC §25D — was terminated by the One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025. The statute now denies the credit for any expenditure made after December 31, 2025, and under §25D and the IRS's OBBBA FAQ, an expenditure is treated as "made" when the original installation is completed — not when you sign a contract or pay. A homeowner who paid in full in December 2025 but whose system was finished in January 2026 gets nothing; the IRS FAQ addresses that scenario directly. The termination covers the entire §25D list: solar electric panels, solar water heating, battery storage of 3 kWh or more, geothermal heat pumps, small wind, and fuel cells. Before OBBBA, the Inflation Reduction Act of 2022 had locked in the 30% rate through 2032, stepping down to 26% in 2033 and 22% in 2034 — OBBBA erased that schedule, cutting the 30% rate seven years short of its scheduled 2032 run. One critical scope limit: only the homeowner-purchase credit died. The business-side §48E credit that finances solar leases and power purchase agreements runs on its own separate clock, and every state-level credit, SREC market, and tax exemption is untouched by the federal repeal.

Who Can Still Claim the 30% Credit in 2026

If your installation was completed on or before December 31, 2025, you claim the credit now: file IRS Form 5695 (Residential Clean Energy Credit, Part I) with your 2025 Form 1040 — due in 2026, or as late as October 15, 2026 on extension. The credit is 30% of qualified costs with no dollar cap for solar electric, batteries, and geothermal (fuel cells are capped per half-kilowatt). It is nonrefundable, so it can only zero out your tax bill — but §25D(c) lets unused amounts carry forward to succeeding tax years, and the Congressional Research Service notes that OBBBA did not repeal the carryforward provision. That means a homeowner with a $6,840 credit and only $4,000 of 2025 tax liability should be able to roll the remaining $2,840 into 2026 and beyond — though confirm against each year's Form 5695 instructions, since the IRS has not published post-termination mechanics in detail. If you installed in 2023 or 2024 and never claimed the credit, you can generally amend within three years of the original filing deadline. Keep proof that installation finished in 2025: the signed completion certificate, final inspection sign-off, or the utility's permission-to-operate letter, since the completion date — not the payment date — is what the IRS looks at.

The Lease and PPA Route: §48E Still Pays 30% — For Now

The clean electricity investment credit under IRC §48E belongs to businesses, and OBBBA left third-party-owned residential solar largely intact. Earlier House drafts would have barred leasing companies from claiming §48E on home systems, but the final law only excludes leased solar water heaters and small wind — leased solar electric systems and PPAs still qualify. The deadlines are what matter. Projects that began construction by July 4, 2026 (twelve months after enactment) keep a roughly four-year window to be placed in service — potentially through 2030. Projects starting construction after that date must be placed in service by December 31, 2027, or receive nothing. Treasury's August 2025 guidance (Notice 2025-42) briefly tightened what counted as "beginning construction" — generally limiting the 5% cost safe harbor to solar facilities of 1.5 MW or less — which is why large lease providers rushed to safe-harbor equipment in early 2026. In June 2026, a federal district court vacated that notice nationwide, restoring the 5% safe harbor, though the government is expected to appeal, so the begin-construction rules remain in litigation. Either way, it is a financier's problem rather than a homeowner's. The practical takeaway: in 2026 a lease or PPA is the only structure through which the 30% federal subsidy still reaches a residential rooftop. Ask the provider directly how the §48E credit is reflected in your monthly rate — the credit accrues to them, not to you, so it only helps if pricing passes it through.

What Survives: State Credits, SRECs, Net Metering, Tax Exemptions

The federal repeal touched nothing at the state level. Hawaii offers the strongest state income-tax credit — 35% of system cost, capped at $5,000 for residential PV — though 2026's Act 24 adds new caps and certification requirements starting with tax years after 2026, so verify the credit's status before relying on it. New York's is the strongest broadly available credit: 25% of system cost, capped at $5,000, with a five-year carryforward — and unlike the old federal credit, it applies to leased systems and PPAs too (25% of your annual payments until you hit the cap). South Carolina's 25% credit is capped at $3,500 per year but carries forward for ten years, so its lifetime value can exceed $5,000. SREC markets also keep paying. As of mid-2026: Washington, DC remains the richest market, with SRECs trading around $350–$425 each; New Jersey's SuSI program pays a fixed-price SREC-II — roughly $76–$85 per MWh for 15 years depending on registration date; Maryland credits trade around $40 (about $57 for certified in-state residential systems); Pennsylvania sits near $22–$40. These prices float, so verify current bids before modeling income. Net metering or net billing survives in most states, though the trend is toward lower export compensation — California's shift to net billing cut export values sharply, so state-specific rates matter more than ever to payback. Finally, property-tax exemptions for the added home value (available in over 30 states) and sales-tax exemptions on equipment (roughly half of states) continue unchanged. In short: the 30% federal layer is gone for purchases, but the state layers that remain can still cover a meaningful slice of system cost — dramatically so in DC, New Jersey, New York, and Hawaii.

The New 2026 Payback Math: A Worked 8 kW Example

Payback now runs on the gross system cost, not cost-after-credit — the single biggest change to solar economics in a decade. Take a typical 8 kW cash purchase at roughly $2.85 per watt installed: $22,800 gross. Assume it produces about 1,300 kWh per kW annually — 10,400 kWh per year — and offsets electricity at a $0.17/kWh average rate, saving about $1,768 per year. Through 2025, the 30% credit ($6,840) cut the net cost to $15,960, for a payback near 9.0 years. In 2026, the same system must recover the full $22,800: about 12.9 years, roughly four years longer, before panel degradation and rate inflation adjustments. Across most states, expect 8–14 years depending on your rate and sun: at $0.25/kWh (parts of California and New England) the same system pays back in under 9 years even without the credit; below about $0.13/kWh, payback stretches past 14 years and the case weakens. Strong state incentives compress this dramatically — in Washington, DC, 10.4 SRECs per year at recent prices could add several thousand dollars annually and pull payback under 5 years, while New Jersey's fixed SREC-II adds roughly $800 per year for 15 years. Run your own utility rate, production estimate, and state incentives through the math above before signing anything — the national averages no longer decide the answer; your state does.

Cash vs. Lease After the Credit: How to Decide

Before 2026, buying almost always beat leasing because the 30% credit went straight to the owner. That advantage has inverted, at least temporarily: the lease or PPA provider can still claim 30% under §48E, so a well-priced third-party agreement is now the only way federal money reaches your roof. Lean toward a lease or PPA if your quoted cash payback exceeds about 12–13 years, your tax situation would have wasted a credit anyway, or the provider offers a low or zero escalator with pricing that visibly reflects the §48E credit. Lean toward cash if you plan to stay 10+ years, live in a strong SREC state — with third-party ownership, the system owner (the company) typically keeps the SRECs — or want to avoid the friction leases add to a home sale, where buyers must assume the agreement or you must buy it out. Watch the fine print either way: annual escalators of 2–3% can erase early savings, and buyout schedules vary widely. Also note the lease window itself is time-limited — §48E's placed-in-service deadlines mean the TPO discount likely thins after 2027 unless the provider safe-harbored equipment. Get one cash quote and one TPO quote for the same system size and compare 20-year totals, not monthly payments.

Could Congress Bring the Credit Back?

Possibly — but do not sign a contract that only makes sense if it does. Since the termination, members of Congress have introduced bills to reinstate or partially restore the residential credit, and the solar industry continues to lobby for it. As of July 2026, none has been enacted, and with the current Congress the near-term odds are widely viewed as low. Even a future restoration would raise hard questions the text of any bill would have to answer: whether it applies retroactively to 2026 installations, whether the 30% rate returns or a lower one, and how it interacts with §48E lease structures. History cuts both ways here — Congress extended the §25D credit past scheduled expirations several times between 2005 and 2022, and portions of it (geothermal, small wind, fuel cells) even lapsed for a year in 2017 before being retroactively revived — so permanent death is not guaranteed; but the OBBBA repeal was a deliberate, scored budget decision, not a scheduled sunset that slipped. The prudent 2026 posture: run your numbers on today's law (no federal credit for purchases), treat any restoration as upside, and check the IRS newsroom and Form 5695 instructions each filing season before assuming anything has changed.