Federal Solar Tax Credit 2026: The ITC Expired — What Homeowners Need to Know

Critical 2026 Update: The Federal Solar Tax Credit Has Expired

⚠️ The 30% federal solar tax credit does NOT apply to solar systems installed in 2026 or later. The credit expired December 31, 2025. If you installed solar in 2026, you cannot claim the Residential Clean Energy Credit on your federal return. Scroll to the State Solar Incentives section for what options remain.

If you’re researching the federal solar tax credit 2026, there is one fact you need to know before anything else: the 30% Residential Clean Energy Credit (Section 25D) no longer applies to solar systems installed after December 31, 2025.

The “One Big Beautiful Bill” (OBBBA), signed into law on July 4, 2025, eliminated the residential solar investment tax credit (ITC) for any expenditures made after that date. According to IRS FAQs for OBBBA Modifications to Energy Credits, the credit will not be allowed for any expenditures made after December 31, 2025.

This guide is for homeowners who installed solar in 2025 or earlier. If your system was placed in service between January 1, 2022 and December 31, 2025, this guide will walk you through exactly how to claim the credit on your tax return. If your system was placed in service in 2022, 2023, or 2024 and you have an unused carryforward credit, this guide also applies to you.

What Was the 30% Solar Investment Tax Credit?

The solar ITC — formally called the Residential Clean Energy Credit under IRS Section 25D — allowed homeowners to deduct 30% of the total cost of a qualifying solar installation directly from their federal income tax bill. This was not a deduction from taxable income; it was a dollar-for-dollar reduction in taxes owed.

According to the IRS Instructions for Form 5695 (2025), the credit rate for solar property placed in service in 2022 through 2025 is 30%. The credit terminates for expenditures made after December 31, 2025, as stated in the ‘What’s New’ section of the 2025 instructions.

What That Meant in Real Dollars (2025 Installations)

According to EnergySage solar cost data, the average cost of a 12 kW solar panel installation is approximately $30,505 before incentives. For a system installed in 2025 — the last eligible year — the 30% ITC would deliver a tax credit of approximately $9,152 — applied directly against your federal tax liability. This figure applies only to 2025 installations; systems installed in 2026 or later do not qualify for this credit.

That’s a substantial reduction. To see how solar installation costs break down by system size and region, including average per-watt pricing of approximately $2.58 nationally, review our full cost guide before finalizing your budget.

Who Was Eligible to Claim the ITC? (Systems Installed Through December 31, 2025)

Eligibility for the Residential Clean Energy Credit depends on several factors. The following requirements applied to systems placed in service by December 31, 2025. According to the IRS:

Ownership Requirements

• You must own the solar system — not lease it or use a Power Purchase Agreement (PPA). As noted by EnergySage, homeowners with lease or PPA agreements do not receive the ITC directly — the third-party system owner claims it instead.
• The property must be your primary or secondary residence. You may claim the credit for a second home you live in part-time, provided you do not rent it to others.
• Landlords and property owners who don’t live in the home cannot claim the credit, even if they paid for the installation.

Installation Requirements

• The solar system must be new — used or previously owned clean energy property does not qualify.
• The system must have been placed in service (fully installed and operational) by December 31, 2025.

Home Business Use

If you use part of your home for business, the rules are nuanced. According to the IRS, if business use is 20% or less, the full residential credit is available. If business use exceeds 20%, the credit applies only to the portion of expenses allocable to non-business use.

What Qualifies for the Credit? (2025 and Earlier Installations Only)

The IRS defines qualified expenses broadly. According to the IRS Residential Clean Energy Credit page, the following costs were eligible for systems placed in service by December 31, 2025:

For homeowners adding a home battery storage system alongside solar panels, the good news is that battery storage technology qualifies for the credit (for systems placed in service in 2023 or later), provided it is charged by the solar installation.

What Does NOT Qualify

Expenses that do not qualify for the Residential Clean Energy Credit:

• Traditional roofing materials (shingles, trusses, decking) that serve a structural function
• Used or previously owned solar equipment
• Solar systems installed after December 31, 2025
• Systems on rental properties where the owner does not reside
• Systems financed through a lease or PPA (the credit goes to the system owner, not the homeowner)

Step-by-Step: How to Claim the ITC Using IRS Form 5695

⚠️ This section applies only to solar systems placed in service between January 1, 2022 and December 31, 2025. If your system was installed in 2026 or later, you cannot claim the Residential Clean Energy Credit and this Form 5695 process does not apply to your situation.

According to the IRS Instructions for Form 5695 (2025), Form 5695 (“Residential Energy Credits”) is the official form for claiming the solar tax credit. It must be attached to Form 1040, 1040-SR, or 1040-NR. For additional guidance on depreciation and property classifications that may affect your filing, see IRS Publication 946. Here’s how to complete Form 5695:

Step 1 — Gather Your Documentation

Before opening Form 5695, collect:

• Final invoices from your solar installer showing itemized costs (panels, inverters, labor, wiring)
• Proof of payment (bank statements, credit card records)
• Installer certification or manufacturer’s certification that the equipment meets IRS requirements
• Date the system was placed in service — this must fall between January 1, 2022 and December 31, 2025. A system contracted in 2025 but not fully operational until 2026 does not qualify.

Step 2 — Complete Form 5695, Part I

Part I of Form 5695 covers the Residential Clean Energy Credit. Here’s what each key line requires:

Line 1 — Enter the total cost of solar electric panels purchased and installed at your qualifying home. Do not include costs for structural components like roofing.

Line 2 — Enter costs for solar water heating property (if applicable).

Line 5 — Enter costs for battery storage technology (for property placed in service after December 31, 2022).

Line 6b — This is your total qualified clean energy property costs — the sum of all eligible expenses entered above.

Line 6c — Multiply Line 6b by 30% (0.30). This is your tentative credit amount.

Lines 12–14 — These lines calculate your allowable credit for the current year, accounting for your actual tax liability. The credit is nonrefundable, meaning it cannot exceed what you owe in taxes for the year.

Line 16 — If your credit exceeds your tax liability, the unused portion carries forward to the following tax year. According to the IRS, this carryforward can be applied to reduce taxes owed in future years.

Step 3 — Transfer the Credit to Schedule 3

The credit amount calculated on Form 5695 flows to Schedule 3 (Additional Credits and Payments), Line 5. From there, it flows to Form 1040, Line 20.

Step 4 — File Your Return

Attach Form 5695 to your completed Form 1040, 1040-SR, or 1040-NR. If filing electronically, your tax software will handle the attachment automatically — but you still need to enter all the figures accurately.

Tip: Keep all supporting documentation (invoices, certifications, proof of payment) for at least three years after filing, in case of an IRS inquiry.

Common Mistakes That Delay Your Credit

These errors are among the most frequent issues that cause the IRS to flag or delay solar tax credit claims:

1. Claiming the credit for a leased system. If you lease your panels or use a PPA, you are not the system owner and cannot claim the ITC. Only the company that owns the equipment can claim it.

2. Including non-qualifying costs. Roof replacement costs, structural reinforcements, and general home improvement expenses do not qualify — even if they were necessary to install the solar system. Only the solar-specific costs belong on Form 5695.

3. Using the wrong installation date. The system must be “placed in service” — meaning fully installed and operational — within the credit period. A contract signed in 2025 but a system not operational until 2026 does not qualify.

4. Forgetting to carry forward unused credit. If your tax liability is lower than your credit amount, many homeowners mistakenly assume they lose the difference. You don’t — the unused portion carries forward. Make sure to record the carryforward amount and apply it in subsequent tax years.

5. Failing to attach Form 5695. The credit cannot be claimed without the completed form attached to your return. Tax software typically prompts you, but double-check before submitting.

6. Mixing business and personal use incorrectly. If more than 20% of your home is used for business, you must prorate the credit. Claiming the full credit when business use exceeds 20% is an error the IRS may flag.

State Solar Incentives: Stack More Savings on Top

Even though the federal ITC no longer applies to 2026 installations, state-level incentives remain active and can significantly reduce the cost of going solar. According to DSIRE (Database of State Incentives for Renewables & Efficiency), managed by NC State University, this database is the most comprehensive source for state-level solar incentives, policies, and rebates across the U.S.

Here’s how key states stack up:

New York

According to Sea Bright Solar – 2025 Solar Tax Incentives: State-by-State Guide, New York homeowners can potentially reduce their total solar investment by up to 60% when combining the state’s 25% solar tax credit, property tax exemptions, and NY-Sun program incentives. New York has also expanded battery storage incentives, making paired solar-plus-storage systems particularly attractive.

California

California’s solar incentive approach focuses on long-term savings through the Net Billing Tariff. According to Sea Bright Solar – 2025 Solar Tax Incentives: State-by-State Guide, while upfront incentives are fewer than other states, the state’s high electricity rates and abundant sunshine create strong financial returns. Local programs including property tax exclusions and battery storage incentives vary by city and utility. California’s average system cost is approximately $22,697 before incentives, according to EnergySage.

Florida

Florida offers no state income tax, which means a state income tax credit isn’t applicable — but the state does provide a sales tax exemption on solar equipment and a property tax exemption for the added home value from solar. Florida’s average system cost is approximately $34,637 before incentives, per EnergySage data.

Texas

Texas similarly has no state income tax, so there’s no state solar tax credit. However, many Texas utilities and municipalities offer rebate programs, and the state provides a property tax exemption for the appraised value added by a solar installation. Local utility programs vary significantly, so checking DSIRE for your specific utility is essential.

To explore how net metering and local incentives interact with your state’s programs, our dedicated guide covers utility-specific policies that can meaningfully affect your payback period.

Financing Your Solar System After the ITC

With the federal ITC no longer available for 2026 installations, the financial calculus for going solar has shifted. That makes choosing the right financing structure more important than ever. Our guide to solar financing options covers solar loans, cash purchases, leases, and PPAs — including how each affects your eligibility for any remaining state-level incentives.

The key takeaway: if you want to maximize state tax credits and other incentives, owning your system outright or through a solar loan preserves your eligibility. Leases and PPAs transfer that eligibility to the financing company.

Frequently Asked Questions

Can I claim the federal solar tax credit if I installed solar in 2026? No. According to the IRS, the Residential Clean Energy Credit does not apply to expenditures made after December 31, 2025, following the passage of the One Big Beautiful Bill signed July 4, 2025.

What if I have unused credit from a 2024 or 2025 installation? You can carry forward unused credit to future tax years. According to the IRS, the nonrefundable credit can be applied against taxes owed in subsequent years until it is fully used.

Does battery storage qualify for the credit? Yes — for systems placed in service after December 31, 2022. Battery storage technology is a qualified expense under Section 25D, provided it is charged by the solar installation. See our home battery storage guide for details on eligible systems.

Is the credit refundable? No. The Residential Clean Energy Credit is nonrefundable, meaning it can reduce your tax liability to zero but will not generate a refund beyond what you’ve already paid. Any excess credit carries forward to the next tax year.

Where can I find state-specific solar incentives? The DSIRE database, managed by NC State University, is the authoritative source for state-level solar incentives, rebates, and policies across all 50 states.

Bottom Line

The 30% federal solar investment tax credit was one of the most significant financial incentives ever offered to American homeowners — and for systems installed by December 31, 2025, it remains fully claimable. If your system qualifies, filing IRS Form 5695 with your 2025 tax return is the mechanism to capture that credit.

For 2026 and beyond, state incentives, utility rebates, net metering and local incentives, and smart solar financing options become the primary levers for reducing the cost of going solar. Check DSIRE for your state’s current programs, and consult a qualified tax professional if your situation involves business use, carryforward credits, or complex ownership structures.