The residential credit no longer exists for new purchases, because Section 25D terminated for expenditures made after December 31, 2025. Understanding how the federal solar tax credit works now means separating three things: what homeowners who bought before that date can still claim, what carries forward, and the commercial credit that third-party owned systems still use.
If you are pricing a system in 2026, plan without a 30 percent federal credit. Our guide to net metering and state solar incentives covers where the remaining savings sit.
A Quick Note
This is general information about how the credit is structured, not tax advice. Tax law changes and individual circumstances differ enormously. Anyone claiming a credit, carrying one forward, or evaluating a third-party ownership contract should confirm their position with a qualified tax professional before filing.
Quick Answer
Section 25D, the Residential Clean Energy Credit, ended for expenditures made after December 31, 2025. Homeowners who paid for a system in 2025 or earlier can claim it on the return for that year, and unused amounts carry forward. Buying a system in 2026 gets no direct federal credit. Leases and power purchase agreements route through a commercial credit claimed by the system owner rather than by you.
Key Takeaways
- The homeowner credit ended for expenditures after December 31, 2025.
- Systems paid for in 2025 remain claimable on that year’s return.
- Unused credit from earlier years carries forward.
- A 2026 cash or loan purchase gets no direct federal credit.
- Third-party owned systems use a commercial credit claimed by the owner.
- Whether any of that reaches your monthly payment is contractual.
| Your situation | Federal credit position |
|---|---|
| Paid for a system in 2025 or earlier | Claimable on that year’s return |
| Unused credit from a prior year | Carries forward |
| Buying with cash in 2026 | No direct federal credit |
| Financing with a solar loan in 2026 | No direct federal credit |
| Lease or power purchase agreement | Owner claims a commercial credit, not you |
| Adding a battery in 2026 | No direct federal credit |
What Section 25D Was
The Residential Clean Energy Credit was a dollar-for-dollar reduction in federal income tax equal to a percentage of what you spent on a qualifying system.
It was nonrefundable, which meant it could reduce tax owed to zero but would not produce a refund beyond that. Any unused portion carried forward to later years.
It applied to the system you owned. Panels, inverters, wiring, mounting hardware, labor and, in later years, standalone battery storage were all part of the qualifying expenditure.
Because it was tied to ownership, a leased system never qualified under it. That distinction is the one that still matters now.
What the Termination Actually Says
The cutoff is expenditures, not installation
The credit ended for expenditures made after December 31, 2025. The date that governs is when the expenditure occurred rather than when the panels were switched on.
Earlier years are unaffected
A system paid for in 2024 or 2025 is claimed on the return for that year under the rules that applied then.
Carryforward survives
Credit you could not use because your tax liability was too small carries forward. Termination of new eligibility does not erase an existing carryforward.
No phase-down
This was not a stepping down of the percentage over several years. New residential eligibility stopped at a date.
What This Does to a 2026 Purchase
A cash purchase or a solar loan in 2026 is priced without a federal credit. That is a material change to the arithmetic rather than a detail.
Payback periods lengthen accordingly, and any calculator or quote that still assumes 30 percent back is producing a number that no longer applies.
State and utility programs are unaffected by the federal change and are now carrying more of the case. Those vary by state and by utility.
Our guide to whether solar is worth it if you move in five years covers the timeline question, and our guide to what to ask a solar installer covers pressing a quote on its assumptions.
Third-Party Ownership Is a Different Credit
Leases and power purchase agreements work differently because you do not own the equipment. The company that owns it claims a commercial clean energy investment credit.
That credit has a base rate which can rise substantially when wage and apprenticeship conditions are met or an exception applies. None of it is claimed on your return.
Whether any of that value reaches you shows up only in the rate you are quoted. It is a contractual matter, not an entitlement.
Ask directly how much federal benefit is reflected in the payment and get the answer in writing. Our guide to what a solar panel warranty covers covers the other contract terms worth reading closely.
Where the Remaining Savings Live
State income tax credits, rebates and property tax exemptions all sit outside the federal change and continue on their own schedules.
Utility programs matter as much. Net metering terms, time-of-use rates and any export credit determine what the system saves you every month for decades.
Property tax treatment varies. Our guide to whether solar increases property taxes covers that side.
Permitting and inspection costs also affect the total. Our guide to what permits you need for solar covers what to budget for.
Mistakes to Avoid Now
- Accepting a quote that assumes 30 percent back. Ask what the number looks like with no federal credit.
- Treating a lease credit as your credit. The owner claims it, and your benefit is whatever the contract says.
- Assuming a carryforward is lost. Unused credit from an earlier year still carries forward.
- Rushing a purchase on a deadline that already passed. There is no remaining residential deadline to beat.
- Ignoring state and utility programs. These now carry more of the economics than they did.
- Relying on an online calculator. Many still have the old credit built into their defaults.
Our guide to choosing solar panels covers the equipment side, and our guide to how long solar panels last covers the lifespan the economics are spread across.
If You Are Filing for an Earlier Year
Keep the paperwork. Invoices, proof of payment and the dates on both are what substantiate an expenditure made before the cutoff.
The credit is claimed on the federal return for the year of the expenditure, and a tax professional can confirm which year applies to a project that spanned a year boundary.
An amended return is the route if a qualifying year was missed, and there are limits on how far back that goes.
Carryforward tracking matters over multiple years, which is another reason to have a professional handle it rather than working from a summary like this one.
Sources
- Internal Revenue Service, guidance on the Residential Clean Energy Credit
- Congressional Research Service, Expiration and Carryforward Rules for the Residential Clean Energy Credit
Frequently Asked Questions
How does the federal solar tax credit work in 2026?
For a homeowner buying a system, it does not. Section 25D terminated for expenditures made after December 31, 2025. Systems paid for in 2025 or earlier remain claimable on that year’s return, and unused credit from prior years still carries forward.
Did the solar tax credit really end?
For new residential purchases, yes, as of expenditures after December 31, 2025. It was not phased down over several years. The commercial clean energy investment credit still exists and applies to systems owned by a business rather than by the homeowner.
Can I still claim it for a system installed in 2025?
If the expenditure was made in 2025, it is claimed on the 2025 return. The governing date is when you paid rather than when the system was switched on, so keep invoices and proof of payment with their dates.
What happens to credit I could not use?
Unused credit carries forward to later tax years. The credit was nonrefundable, so it could only reduce tax owed, and anything beyond that carried over. Ending new eligibility does not cancel a carryforward you already have.
Do leases and PPAs still get a federal credit?
The system owner can claim a commercial credit, not you. Whether any of that value shows up in your monthly rate is purely contractual. Ask the provider directly how much federal benefit is reflected in the price and get it in writing.
What about batteries?
Standalone residential battery storage fell under the same residential credit, so a battery bought in 2026 gets no direct federal credit either. State and utility storage programs are separate and continue on their own terms.
Does this change whether solar is worth it?
It lengthens payback, and it moves more of the case onto electricity rates, state programs and net metering terms. Whether the arithmetic still works depends on your utility rates and consumption rather than on the federal position alone.
Should I talk to a tax professional?
Yes, before claiming anything or signing a third-party ownership contract. Tax positions depend on your liability, your filing situation and the dates on your paperwork. A summary written for a general audience cannot settle any of that.
