Solar panels in 2026: the complete guide after §25D expires

What died with §25D — and what OBBBA did and did not extend

The Residential Clean Energy Credit under IRC §25D was a 30% nonrefundable credit against federal income tax for qualified residential clean energy expenditures placed in service through December 31, 2025. Qualifying property included solar photovoltaic panels, battery storage with capacity of at least 3 kWh (added by the Inflation Reduction Act of 2022), solar water heating equipment, small wind turbines, and geothermal heat pumps. The credit had no dollar cap after the IRA removed the prior cap — meaning a $30,000 system generated a $9,000 federal credit with no ceiling.

OBBBA, signed into law on July 4, 2025, made several energy tax changes. What it extended: the commercial §48E Clean Electricity Investment Credit, which applies to commercial and industrial solar projects satisfying prevailing-wage and apprenticeship requirements, as well as standalone battery storage systems in commercial contexts. What it did not extend: §25D for new residential installations after December 31, 2025. Homeowners who completed installation by December 31, 2025 can still claim the full 30% credit on their 2025 federal return (see the §25D claim guide article for Form 5695 instructions).

A common misconception is that all solar tax credits are dead. That is incorrect. §48E remains active for commercial installations. State income tax credits, property tax exemptions, SREC programs, and utility rebates — the rich state incentive ecosystem — are entirely unaffected by §25D’s expiration. The financial picture for residential solar in 2026 is materially different from 2025, but it is not barren.

What still exists in 2026: the surviving incentive stack

Per Autumn Proudlove, DSIRE Program Manager (DSIRE, 2024): DSIRE currently tracks over 3,000 state and utility-level incentive programs across all 50 states — the vast majority of which are unaffected by §25D’s expiration. The five major categories of surviving incentives for residential solar homeowners in 2026:

1. State income tax credits.Massachusetts (15% up to $1,000/yr, claimed over multiple years if system generates SRECs), New York (25% up to $5,000 one-time credit), Colorado (15%), South Carolina (25%), Maryland (30% up to $5,000), Utah (25% up to $800), North Carolina (35% for commercial; residential credit structure varies). These are state-level credits applied to your state income tax return — they survive the federal §25D expiration entirely because they are enacted in state law. Per Andrew Sendy, SolarReviews Founder (SolarReviews, 2024): “Most homeowners overlook state-level incentives that can be worth more than the old federal credit in high-incentive states like Massachusetts, New York, and New Jersey.” Verify current program terms at dsireusa.org before signing any installation contract — program caps and availability change quarterly.
2. State property tax exemptions. Texas (100% of added value exempt under Texas Tax Code §11.27), Arizona (100% exempt under A.R.S. §42-11054), New York (15-year exemption under Real Property Tax Law §487), New Jersey (100% local exemption in most counties), Colorado (100%). On a $25,000 system in a Texas county with a 2.0% property tax rate, the 100% exemption saves approximately $500/yr — a 20-year present value of approximately $6,200 at a 5% discount rate.
3. SREC programs. Solar Renewable Energy Certificates remain active and highly valuable in New Jersey (SREC II: ~$85/MWh), Maryland (~$65/MWh), Massachusetts SMART (~$45/MWh), Pennsylvania (~$40/MWh), and the District of Columbia (~$420/MWh — highest in the country due to aggressive RPS solar carve-out). SREC income is taxable as ordinary income. A 7 kW system producing 8,500 kWh/yr in New Jersey earns approximately 8.5 SRECs/yr, worth ~$722/yr at $85/MWh — a 10-year present-value income stream of approximately $5,575 at a 5% discount rate.
4. Utility rebates. National Grid (serving parts of Massachusetts and New York) offers up to $0.20/W rebate capped at $1,050. Xcel Energy (Colorado) offers rebates that vary by program year. SMUD (Sacramento) offers approximately $0.15/W. Most utility rebates are counted as taxable income in the year received — offset by their immediate incentive value. Availability varies and programs frequently exhaust annual funding before year-end.
5. Net metering credits.Net metering remains the baseline billing mechanism for most states, though the rate varies dramatically. California’s NEM 3.0 (effective for new installations from April 2023) credits solar exports at avoided-cost rate (~$0.05/kWh) rather than retail rate (~$0.25–$0.35/kWh for PG&E customers), which reduced solar ROI for California cash buyers by approximately 25–30%. Most other states still offer full-retail or near-retail net metering. The value of net metering is captured in the system’s avoided utility bill calculation rather than as a separate incentive layer.

The payback math in 2026: what the NREL numbers actually show

Per Lawrence Berkeley National Laboratory, Tracking the Sun 2024: the national median installed cost for residential solar dropped from $4.10/watt in 2020 to $3.05/watt in 2024 — a 26% reduction in four years. At $3.05/watt, an 8 kW system costs $24,400 gross before incentives. Per Vikram Aggarwal, EnergySage CEO, EnergySage Solar Marketplace Report 2024: homeowners who collect three or more competing quotes through the EnergySage marketplace average 20% below single-quote pricing, bringing an effective installed cost to approximately $19,500 for a well-shopped 8 kW system.

2026 payback example — Massachusetts homeowner, 8 kW system

Gross installed cost:          $24,400 ($3.05/watt)
Less: MA state income credit   -$1,000 (15%, capped, claimed over ~5yrs)
Less: MA sales tax exemption   -$0 (MA exempts solar equipment)
Less: SREC 10yr PV income est. -$5,575 ($45/MWh × 8.5 SRECs/yr, 5% DR)
Less: property tax exemption   -$2,250 (est. 15yr PV, 1.5% local rate)
Net effective cost:            ~$15,575

Annual utility savings (Year 1):
  8,000 kWh/yr production × $0.17/kWh retail (MA avg): $1,360
  Plus SREC cash Year 1: $383 (8.5 SRECs × $45/MWh)
  Total Year 1 savings: $1,743

Simple payback: ~8.9 years (using Year 1 savings on net cost)
25-year NPV at 2.8% escalation, 7% discount rate: ~$25,000–$32,000

(Estimates only. Verify current SREC rates, utility rates, and incentive
 program availability before making any installation decision.)

Per Jigar Shah, DOE Loan Programs Office Director (DOE, 2025): in high-rate markets — New England, California, New York, Hawaii — the 6–9 year payback case is well-supported even without §25D. In low-rate markets — the Pacific Northwest, parts of the Southeast served by TVA — payback periods can extend to 15+ years, and the analysis becomes more sensitive to utility rate escalation assumptions. Use the Solar Payback & 25-Year NPV Projector to model your specific system against your utility rate and state incentive stack.

Lease vs. buy in 2026: the incentive-capture gap just got bigger

With §25D gone, the lease-versus-buy incentive-capture gap has narrowed in absolute dollar terms but grown in relative importance. Under §25D, the federal credit was the largest single incentive — 30% of system cost, worth $7,320 on a $24,400 system. A homeowner who leased gave that $7,320 credit to the installer (since the installer owns the system and claims the credit). That was a large give-up, but it was partly offset by the convenience and no-upfront-cost structure of a lease.

In 2026, §25D is gone for everyone. But state incentives remain — and state incentives accrue to the system owner, not to you if you lease. In New Jersey, the SREC program income of approximately $722/yr over 10 years goes to the installer if you lease. The property tax exemption applies to the assessed value, but the financial benefit is yours regardless. In Massachusetts, the state income tax credit accrues to whoever files the return and claims it — which for a leased system is the installer who is treated as the taxpayer for the credit. Per Andrew Sendy, SolarReviews Founder (SolarReviews, 2024): in high-incentive states, the gap between lease economics and ownership economics has grown relative to 2025 because state incentives are now the primary financial lever, and leasing transfers that lever to the installer.

The lease is still a legitimate choice for homeowners without the liquidity for cash purchase and who cannot qualify for a loan — zero upfront cost, immediate savings, and no maintenance responsibility. But the NPV comparison is not close. Use the Solar Financing Comparator to quantify the gap for your specific state and system size.

Battery storage in 2026: the 23% attach rate and what’s driving it

Per Lawrence Berkeley National Laboratory, Tracking the Sun 2024: approximately 23% of new residential solar systems now include battery storage — up from 8% in 2020. The drivers are threefold: (1) falling battery hardware costs (Tesla Powerwall 3 retail: approximately $9,200 installed; LG RESU: approximately $7,500–$9,000 installed); (2) California’s NEM 3.0, which dramatically reduced solar export value and made time-of-use arbitrage via battery storage the primary California solar value proposition; and (3) increasing utility TOU rate adoption nationally, where peak rates of $0.35–$0.55/kWh create arbitrage opportunity for batteries charged during off-peak periods.

For commercial applications — a business-owned solar-plus-storage system — the §48E credit (30% with prevailing wage compliance) applies to qualifying standalone battery storage of 3 kWh or more. Residential homeowners do not access §48E directly through their personal tax return. If you operate a business from your home and the battery system is used for eligible business purposes, consult a CPA about whether any portion qualifies for §48E through a commercial entity structure.

The financial case for residential battery storage in 2026 is market- and rate-structure dependent. In California (high peak rates, NEM 3.0 export at avoided cost), battery NPV is strong. In flat-rate markets with full-retail net metering, battery NPV is weaker and the payback period typically extends 12–16 years for battery-only economics. The Battery Storage ROI calculator models TOU arbitrage value, backup power value, and battery-specific payback separately from the solar panel analysis.

What to do if you installed solar in 2025: claim your §25D credit now

If your solar installation was completed and the system was operational before December 31, 2025, you are still eligible for the full 30% §25D Residential Clean Energy Credit. You claim it on IRS Form 5695 (Residential Energy Credits) filed with your 2025 federal tax return, due in April 2026 (or October 2026 with extension). The credit is nonrefundable — it reduces tax owed but does not generate a refund — and importantly: §25D has no carryforward provision. If your credit exceeds your 2025 tax liability, you cannot carry the unused credit to 2026. This makes 2025-return accuracy critical. See the full §25D claim guide for Form 5695 line-by-line instructions, eligibility rules, and the “placed in service” definition. Consult a CPA or Enrolled Agent to confirm your eligibility before filing.