The main federal solar panels program for homeowners, the Residential Clean Energy Credit under 26 U.S.C. ยง 25D, expired on December 31, 2025. If you are shopping for panels in 2026, the 30% federal tax credit no longer applies to new installations. State rebates, property and sales tax exemptions, net metering, and utility programs still exist in many areas, and homeowners whose systems were placed in service by the end of 2025 can still claim the credit on their 2025 return.
What the Federal Credit Was and When It Ended
From 2022 through 2025, homeowners who installed solar could claim a federal tax credit equal to 30% of total system costs, including panels, inverters, wiring, mounting hardware, and labor for installation.1Internal Revenue Service. Residential Clean Energy Credit The credit also covered battery storage with a capacity of at least 3 kilowatt-hours, solar water heaters, and other qualifying clean energy equipment. There was no dollar cap.
In 2025, Congress passed legislation terminating the credit for any expenditures made after December 31, 2025.2Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit As of 2026, no federal residential solar tax credit exists for new installations.
Who Can Still Claim the 30% Credit
If your system was placed in service on or before December 31, 2025, you can still claim the 30% credit on your 2025 federal return.1Internal Revenue Service. Residential Clean Energy Credit The system had to be installed at a residence you use as a home in the United States, and you had to own the equipment rather than lease it. The home does not need to be your primary residence; second homes and vacation properties also qualify.3Internal Revenue Service. Instructions for Form 5695 (2025)
The credit is nonrefundable. It can reduce your federal income tax to zero but will not generate cash back beyond that. If the credit exceeds your tax liability for the year, the unused portion carries forward to future tax years.2Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit This carryforward matters more than people realize. A $9,000 credit on a $30,000 system does nothing extra in a year when your total federal income tax is only $5,000. You would use $5,000 of the credit that year and carry the remaining $4,000 into the next.
What Counts as a Qualified Expense
Qualified expenses include the full cost of solar electric panels, inverters, mounting equipment, and wiring. Labor for site preparation, assembly, and original installation counts. Solar roofing tiles and solar shingles qualify because they generate electricity, but conventional roofing components like trusses and standard shingles that merely support the panels do not.1Internal Revenue Service. Residential Clean Energy Credit Used or previously owned equipment is not eligible.
How Utility Subsidies Reduce Your Credit
If your utility gave you a subsidy toward buying or installing the system, subtract that amount from your qualified expenses before calculating the 30% credit.1Internal Revenue Service. Residential Clean Energy Credit A $28,000 system with a $3,000 utility subsidy means you calculate the credit on $25,000, not the full price. The same rule applies if the subsidy went to your contractor on your behalf.
Manufacturer or retailer rebates tied to the purchase price are also subtracted. State energy efficiency incentive payments generally are not subtracted from your qualified costs, though they may count as taxable income on your federal return.1Internal Revenue Service. Residential Clean Energy Credit Net metering credits for electricity you sell back to the grid do not affect your qualified expenses.
Filing Form 5695 for a Pre-2026 Installation
To claim the credit, file IRS Form 5695 with your federal income tax return (Form 1040, 1040-SR, or 1040-NR).4Internal Revenue Service. Form 5695 – Residential Energy Credits Enter your qualified solar electric property costs on line 1. The final credit amount flows to line 15 of the form and then to Schedule 3 of your Form 1040.3Internal Revenue Service. Instructions for Form 5695 (2025) Most electronic filing software handles this automatically. If filing by mail, include the completed Form 5695 with your return.
Have these on hand before you file: itemized invoices separating hardware from labor; system specifications, including nameplate capacity in kilowatts and the date the system was placed in service; manufacturer and model numbers for panels and inverters; and interconnection documentation such as a permission-to-operate letter or final inspection report from your utility.
Leases and Power Purchase Agreements
The federal credit was only available to homeowners who owned their equipment outright. If you signed a solar lease or a power purchase agreement where a company installed panels on your roof but kept ownership, you cannot claim the credit. The leasing company owns the system and claims the tax benefits itself. This distinction tripped up many homeowners who assumed the credit followed the roof rather than the equipment title.
Even with the federal credit gone, ownership still matters for state programs. Many state rebates and renewable energy certificate programs require you to own the system to participate.
State and Local Programs That Still Apply in 2026
With the federal credit off the table, state and local incentives now carry the full weight of making solar affordable. Programs vary widely, but they generally fall into a few categories.
Performance-Based Incentives and Renewable Energy Certificates
Some states and utilities pay homeowners a fixed rate for every kilowatt-hour their system generates over a set period. Solar Renewable Energy Certificates operate separately as tradable credits: utilities in states with renewable energy mandates buy them from solar homeowners to satisfy compliance requirements. Certificate values fluctuate with market demand, but in states with aggressive clean energy targets, they can add meaningful income over the life of a system.
Grants and Utility Rebates
State-funded grants and direct utility rebates that reduce the upfront purchase price remain available in many areas. These programs almost always operate on a first-come, first-served basis with fixed budgets. Once the money runs out, the program closes until the next funding cycle. Eligibility often depends on your specific utility provider, the size of your system, or your household income. Some programs cap the rebate at a fixed dollar amount or limit participation based on the system’s capacity in kilowatts. Check with your state energy office and local utility for current availability.
Property Tax Exemptions
Solar panels increase a home’s market value, but in many states that added value will not raise your property taxes. More than a dozen states offer property tax exemptions that specifically exclude the value added by a solar installation from your assessment. In most cases the exemption covers the full added value, and it persists for as long as you own the home.
Sales Tax Exemptions
Roughly 18 states exempt residential solar equipment from state sales tax. On a system costing $25,000 or more, skipping a 6% or 7% sales tax saves over $1,500. The exemption may apply only to equipment, only to labor, or to both. Your installer should know whether your state participates. Verify through your state’s department of revenue.
Net Metering
Net metering is the billing arrangement that makes residential solar economically viable for most homeowners. When your panels produce more electricity than your home uses during the day, the surplus flows back to the grid and your meter effectively runs in reverse. You get a credit on your utility bill for that surplus, which offsets electricity you draw from the grid at night or during cloudy periods. You are billed only for your net usage.
More than 30 states plus Washington, D.C. have mandatory net metering rules. The specific terms differ. Some states credit you at the full retail rate for electricity, while others use a lower wholesale or avoided-cost rate. A few states have moved to successor programs that reduce the credit value for new solar customers. Before you install, your state’s net metering policy is as important to understand as the equipment costs, because it directly determines how quickly the system pays for itself.
What Solar Costs Without the Federal Credit
The average residential solar system costs between $20,000 and $30,000 before incentives, with per-watt pricing in the range of $2.50 to $3.00. Without the 30% federal credit, the full sticker price lands on the homeowner unless state and local incentives close part of the gap. A system that would have effectively cost $17,500 after a $7,500 federal credit now costs the full $25,000 minus whatever state rebates or tax exemptions apply.
Solar loans are widely available and let you spread the cost over 10 to 25 years, often at rates competitive with home improvement loans. Some homeowners use home equity lines of credit, which may offer lower rates and potentially deductible interest. The math still works in many parts of the country thanks to rising utility rates and state-level incentives, but it requires a more careful payback analysis than it did when the federal government was covering nearly a third of the tab.