By The Roofing Brief Team. Last reviewed: October 2026.
Federal solar tax credit 2026 status: there is no federal solar roof tax credit for a homeowner-owned system installed in 2026. The Residential Clean Energy Credit under Internal Revenue Code Section 25D paid 30% of qualifying solar costs, but Public Law 119-21 (signed July 4, 2025, section 70506) ended it for any expenditure made after December 31, 2025. The IRS treats an expenditure as made when the installation is completed, so a solar roof finished in 2026 does not qualify even if it was paid for in 2025 (IRS FS-2025-05, question 7). The old schedule of 30% through 2032, then 26% in 2033 and 22% in 2034, no longer exists.
Four things still matter in 2026: claiming the 30% credit on Form 5695 for a system completed in 2025 or earlier, the commercial credit a lease or PPA owner may still claim, state income tax credits such as New York’s 25% (capped at $5,000) and Hawaii’s 35% (capped at $5,000 for a single-family PV system), and production payments such as New Jersey’s 15-year SREC-II program. Related: Solar policy news 2026. Tax rules change; check current IRS guidance and a tax professional before relying on any of it for a specific project.
Decision table: does any federal credit apply to your system?
| If your situation is | Federal credit status | What to do |
|---|---|---|
| You own the system and installation was completed by December 31, 2025 | 30% Section 25D credit applies | Claim on Form 5695, Part I, for the year of completion; carry forward any excess |
| You paid in 2025 but installation was completed in 2026 | No Section 25D credit (IRS FS-2025-05) | Price the system on gross cost; check state incentives |
| You own a system installed in 2026 or later | No Section 25D credit | Ask every installer to restate payback without a federal credit |
| You lease or sign a PPA for rooftop PV and the owner began construction by July 4, 2026 | The owner may claim the commercial Section 48E or 45Y credit | Ask in writing whether the contract rate assumes that credit |
| You lease or sign a PPA for rooftop PV and construction begins after July 4, 2026 | The owner’s credit requires placement in service by December 31, 2027 | Get the in-service date and the rate if the credit fails in the contract |
| You lease solar water heating or small wind | The lease bar in 48E(i) and 45Y(h) names this property | Assume no federal credit flows through; confirm with a tax advisor |
| You add a standalone battery in 2026 | No Section 25D credit | Look for state or utility battery programs |
What the Credit Covered (Systems Completed by December 31, 2025)
For installations completed by December 31, 2025, Section 25D applied to the total cost of installing qualifying property, including labor, permits, design fees, sales tax, and the equipment itself. IRS guidance included Notice 2013-70, and the Inflation Reduction Act had extended the credit through 2034 before Public Law 119-21 cut it off after 2025.
Qualifying property included solar panels (photovoltaic modules), inverters, racking, electrical work tied to the solar install, battery storage of at least 3 kWh capacity, solar water heating systems certified by the Solar Rating and Certification Corporation or a comparable state-endorsed body, geothermal heat pumps, small wind energy property, and fuel cells of at least 0.5 kW capacity. Solar shingles like Tesla Solar Roof and GAF Energy Timberline Solar qualified only for the electricity-generating portion of the system, per the 2025 Form 5695 instructions. Related: Types of solar energy.
What did not qualify: the structural cost of the roof underneath solar panels in most cases, landscaping or site work unrelated to the solar install, and interest or loan origination fees (the IRS says not to include them). Landlords who do not live in the home could not claim it, and a home used partly for business qualified in full only up to 20% business use, per the IRS Residential Clean Energy Credit page.
The roof question was where Tesla Solar Roof and GAF Energy Timberline Solar got interesting. The solar tile portion could qualify for the credit, but non-active “dummy” tiles, underlayment, decking, and structural work did not. If you are claiming a 2025 installation, get the solar allocation in writing from the installer before you file, and do not claim the full solar shingle roof cost.
For rack-mounted panels on a new roof, the underlying roof was not credit-eligible. Only the solar equipment and installation labor for the solar portion qualified. If you replaced an asphalt shingle roof for $12,000 and added rack-mounted panels for $20,000 in 2025, the credit applied to the $20,000 only. The same logic applies to questions about whether a new roof is tax deductible on its own (almost never for owner-occupied residential).
What Changed: The Federal Timeline After Public Law 119-21
The Inflation Reduction Act of 2022 had set the credit at 30% through 2032 with a step-down after that. Public Law 119-21 replaced that schedule. The current federal picture:
Installations completed in 2022 through 2025: 30% credit. Qualifying property whose installation was completed by December 31, 2025 earned the full 30% on qualifying costs.
Installations completed in 2026 or later: no Section 25D credit. The law struck the 2033 and 2034 step-down years along with everything after 2025.
Completion date, not payment date, controls. Under Section 25D(e)(8)(A), an expenditure is treated as made when the original installation is completed. The IRS confirmed in FS-2025-05 that paying in 2025 does not save a system installed after December 31, 2025. For a newly built home, the expenditure is treated as made when your original use of the home begins.
The dollar effect is simple. A $30,000 solar system completed in 2025 could generate a $9,000 federal credit. The same system completed in 2026 generates nothing under Section 25D, so the full gross price is the starting point for any 2026 payback estimate. Any 2026 quote that subtracts a 30% federal credit from the price of a system you will own is out of date.
With the homeowner credit gone, four inputs carry the whole 2026 payback calculation: the gross installed price per watt on your quote, your utility’s retail rate, the export credit your net metering or net billing tariff pays, and any state incentive. A worked check: a 7 kW system quoted at $21,000 gross needs $1,750 a year in bill savings and incentives to pay back in 12 years. For current price ranges, see our solar installation cost 2026 breakdown.
How to Claim a 2025 Installation: IRS Form 5695
If installation was completed in 2025 or earlier, the Residential Clean Energy Credit is claimed on IRS Form 5695, Part I, filed with the return for the year the installation was completed. If you missed it, ask a tax professional whether an amended return is still an option. There is nothing to claim on Form 5695 for a solar system completed in 2026.
Solar electric costs. The solar electric line covers the photovoltaic system, including equipment, installation, electrical work, and qualifying battery storage of 3 kWh or larger.
Other clean energy property. Solar water heating, fuel cell, small wind, geothermal and battery storage each get their own line on Form 5695. A rooftop PV install without a battery uses only the solar electric line.
Applicable percentage. The form multiplies qualifying costs by 30%, the rate that applied to installations completed from 2022 through 2025.
Carryforward. If you could not use the full credit in the year of installation, the IRS says the unused amount carries forward to reduce tax in future years. A $9,000 credit against $4,000 of tax leaves $5,000 to carry into the next return.
Tax liability limitation. The credit is non-refundable. You cannot get back more than your actual federal income tax liability for the year. If you owe $4,000 and your credit is $6,000, you take $4,000 this year and carry the remaining $2,000 forward.
Required documentation: keep the installer invoice, payment receipts, manufacturer specification sheets for major equipment, permit documents, the utility interconnection agreement and a dated completion record. The IRS doesn’t ask for these with the return but expects them in an audit. Keep them until the assessment period closes for the last year you use any carryforward, which is generally 3 years after that return is filed.
Common mistakes on 2025 claims: claiming the full Tesla Solar Roof cost without separating solar from non-solar tiles, claiming a roof replacement as qualifying when it’s not, missing the 3 kWh threshold for battery eligibility, and filing under Form 3468 (the commercial Section 48 form) instead of Form 5695.
State Tax Credits and Rebates (Separate From the Federal Change)
Several states offer their own income tax credits or rebates. Public Law 119-21 changed federal law, not state programs, but each state sets its own caps and deadlines, so confirm current terms with the state agency before counting on any of them.
| State | Credit | Cap | Form | Source |
|---|---|---|---|---|
| New York | 25% of qualified solar equipment expenditures | $5,000; unused credit carries forward up to 5 years | IT-255 | NY Form IT-255 instructions |
| Hawaii | 35% of actual cost | $5,000 per single-family PV system; $2,250 for single-family solar water heating | N-342 | Hawaii Form N-342 |
| Massachusetts | 15% of net cost | $1,000 | Schedule EC | Massachusetts DOR Schedule EC |
| South Carolina | 25% of cost | $3,500 per year; excess carries forward 10 years | TC-38 | SC Department of Revenue; confirm current status |
| Arizona | 25% of cost | $1,000 | Form 310 | Arizona Department of Revenue |
| New Mexico | 10% of purchase and installation cost | $6,000 | Certified through EMNRD, then claimed on the state return | New Mexico EMNRD |
New York: NY-Sun Megawatt Block program plus 25% state tax credit (capped at $5,000). The state credit is on Form IT-255, claimed in the year the system is placed in service. NY-Sun provides upfront incentives set by region and Megawatt Block, which step down as each block fills.
Massachusetts: 15% state tax credit (capped at $1,000) plus SMART program income. The state credit is on Schedule EC. SMART (Solar Massachusetts Renewable Target) pays a fixed incentive per kWh produced for a set term, with the rate set by utility territory (Eversource, National Grid, Unitil) and capacity block.
South Carolina: 25% state tax credit (capped at $3,500 per year). Claimed on TC-38, with a 10-year carryforward for unused credit. Confirm the credit’s current status with the SC Department of Revenue before counting on it.
Hawaii: 35% state tax credit (capped at $5,000 for a single-family PV system). Claimed on Form N-342, which applies a lower $2,250 cap to single-family solar water heating.
Arizona: 25% state tax credit (capped at $1,000). Claimed on Form 310.
New Mexico: 10% state tax credit (capped at $6,000). The system is certified by the New Mexico Energy, Minerals and Natural Resources Department before the credit is claimed on the state return.
Several states pay production incentives rather than tax credits: New Jersey’s Successor Solar Incentive (SuSI) program, Connecticut’s Residential Renewable Energy Solutions tariff (the successor to the closed Residential Solar Investment Program), and Illinois Shines.
Many states also exempt the added value of a solar system from property tax assessment, and some exempt solar equipment from sales tax. The DSIRE database run by the NC Clean Energy Technology Center lists each state’s exemptions with statute citations; check your county assessor for how the exemption is applied.
SREC Markets: NJ, MA, IL, MD, PA, OH
Solar Renewable Energy Certificates are a separate revenue stream from any tax credit. The system produces one SREC for every megawatt-hour (1,000 kWh) of electricity generated. SRECs are sold to utilities and electricity suppliers that must source a percentage of their power from solar under state Renewable Portfolio Standards.
Program rules, not a single national market, set what an SREC is worth. The structures as of 2026:
| Program | How it pays | Term | Source |
|---|---|---|---|
| New Jersey SuSI ADI (SREC-II) | Fixed value per SREC-II set by BPU order; $90 for net-metered residential at the August 2021 launch, stepped down since | 15 years | NJ BPU, July 28, 2021 |
| Massachusetts SMART | Fixed incentive per kWh by utility and block | Set by program rules for the system size | Massachusetts DOER |
| Illinois Shines (Adjustable Block) | Buys 15 years of RECs; small systems (25 kW or less) approved on or after June 1, 2026 get 50% at energization, the rest over the following years | 15-year REC contract | Illinois Shines |
| Maryland, Pennsylvania, Ohio SRECs | Market price per SREC, sold spot or under broker contract | Varies by state and contract | PJM-GATS registry |
New Jersey ADI: The Administratively Determined Incentive replaced the Transitional Renewable Energy Certificate (TREC) program for new registrations from August 28, 2021. Each SREC-II has a fixed value for 15 years from registration. A 7 kW system producing 9 MWh a year earns 9 SREC-IIs a year; multiply by the current BPU value on your registration date.
Massachusetts SMART: Tariff-based incentive paying a fixed rate per kWh produced for the term set in the program rules. Rates vary by utility territory (Eversource, National Grid, Unitil) and capacity block, so get the block and rate in writing from the installer.
Illinois Shines (Adjustable Block Program): The utility buys 15 years of RECs through an Approved Vendor. Contracts approved before June 1, 2026 for small systems paid 100% at energization; under the 2026 contract, small systems receive 50% up front. Ask the Approved Vendor how much of the REC payment is passed through to you.
Maryland SREC: Traditional SREC market; price moves with each compliance year’s demand and the solar alternative compliance payment. A 7 kW system producing 9 MWh a year creates 9 SRECs to sell spot or through a broker contract.
Pennsylvania AEPS: SRECs for Pennsylvania’s Alternative Energy Portfolio Standard trade on the same PJM-GATS registry; get a current broker bid before assuming a value.
Ohio SREC: Ohio-sited systems register with PJM-GATS as well; check a current broker bid, as Ohio’s solar carve-out market is small.
SREC income is generally federally taxable as ordinary income. State tax treatment varies. Sell-side aggregators like SRECTrade, Knollwood Energy, and Sol Systems handle registration and sale for a fee; compare their percentage or flat fee in writing. DIY sale is possible but requires PJM-GATS or similar state registry registration.
Battery Storage: 3 kWh Threshold
The Inflation Reduction Act expanded the Section 25D credit to cover standalone battery storage of 3 kWh or larger, even when installed without solar, starting in 2023. That expansion ended with the rest of the credit: a battery whose installation is completed in 2026 or later gets no Section 25D credit, standalone or paired with solar.
For batteries completed by December 31, 2025, the credit was 30% of qualifying installed cost, whether the battery was installed standalone or with solar.
What qualified as battery storage for credit purposes: lithium-ion chemistry, lithium iron phosphate (LiFePO4), and other electrochemical storage systems sized 3 kWh or larger. Lead-acid backup batteries on a small inverter typically did not meet the 3 kWh threshold.
Installation labor for a battery of 3 kWh or more counted toward the credit, as did the inverter or hybrid inverter needed to connect it to the home’s electrical system, when the invoice listed them as part of the battery scope of work.
Net Metering: The Other Revenue Stream
Net metering is the utility billing arrangement that credits exported solar production toward future consumption. It is set by state law and utility tariffs, not federal tax law, and it decides what each exported kWh is worth: a 1:1 retail credit under classic net metering, or a lower export rate under net billing.
States with retail-rate net metering for residential systems include New York, Massachusetts, New Jersey, Illinois and Maryland, with state-specific caps and charges. California’s NEM 2.0 customers keep that tariff for 20 years from interconnection, while systems that applied after April 14, 2023 go on the Net Billing Tariff (often called NEM 3.0) with lower export values.
States with reduced net metering or net billing credit exports at less than the retail rate: Arizona, Nevada (systems under its 2017 law), South Carolina (Solar Choice tariffs) and Florida (with limits) are examples, and other states are reviewing their tariffs.
The sizing rule: if your tariff credits exports at less than your retail rate, size the system to your daytime consumption, not your annual consumption, and price a battery to shift the surplus into the evening. If exports earn the full retail rate, sizing to 100% of annual use is the usual target.
For state-by-state net metering breakdown, see our net metering explained guide.
Leases, PPAs, and the Tax Liability Limit
For systems completed by 2025, the Residential Clean Energy Credit is non-refundable. It reduces your federal income tax liability but cannot create a refund larger than your actual tax owed. If your federal tax liability for the year is $4,000 and your credit is $9,000, you take $4,000 this year and the remaining $5,000 carries forward to later tax years, per the IRS.
The limit hits retirees, low-income households, and anyone whose deductions leave little federal tax: a household with $2,000 of annual tax liability would take 4.5 years to use a $9,000 credit. The credit is still claimable for a 2025 installation, just spread over multiple years.
For 2026 installs, third-party-owned systems follow commercial rules, not Section 25D. For leased or PPA rooftop solar, the company that owns the system may still be able to claim the commercial clean electricity investment credit under Section 48E (or the production credit under Section 45Y), subject to the Public Law 119-21 deadlines (sections 70512 and 70513): a solar facility that begins construction after July 4, 2026 must be placed in service by December 31, 2027, and new foreign-entity rules apply. Public Law 119-21 also added a lease bar in sections 48E(i) and 45Y(h), but as enacted it names residential solar water heating and small wind property (Section 25D(d)(1) and (d)(4)), not rooftop PV (Section 25D(d)(2)). A technical correction is possible, so confirm with a tax advisor. Any benefit would show up in the contract rate, so ask the provider in writing whether its price assumes a federal credit and what happens to your rate if it does not get one.
Over a full 20 to 25 year contract, a lease or PPA with, for example, a 2.9% annual escalator raises the payment by about 70% to 100% by the final year, so compare the gross cash or loan price of an owned system against the full-term lease or PPA cost over the same period. Our guide to solar panel costs for a house compares cash, loan and lease prices for a typical home system.
Common Mistakes on 2025 Credit Claims
Filing the wrong form. The Section 25D residential credit is Form 5695, Part I. Commercial energy credits use Form 3468. Owners of rental property they do not live in cannot claim Section 25D.
Assuming the payment date controls. The IRS treats the expenditure as made when the original installation is completed. A system paid for in 2025 but not completed until 2026 does not qualify for Section 25D at all (IRS FS-2025-05). Document the completion date.
Claiming rebates as part of cost basis. State rebates and utility incentives generally reduced the cost basis for the federal credit. A $25,000 system with a $5,000 state rebate had a $20,000 federal credit basis, not $25,000.
Stacking labor costs that aren’t qualifying. Roof replacement labor, structural work, tree removal to clear shading, and landscaping were not credit-qualifying even when done as part of the solar project; on a $12,000 reroof plus $20,000 of panels, only the $20,000 counts. Solar-specific electrical work, permits, and design fees did qualify.
Missing the battery storage threshold. Batteries below 3 kWh did not qualify under Section 25D. Confirm the battery nameplate capacity in writing before filing.
Misreading who can claim. The IRS says you could claim the credit for your main home whether you own or rent it, but a landlord or other owner who does not live in the home could not. Third-party-owned systems (leases and PPAs) are never claimed on your Form 5695.
What to Do This Year
If you are installing in 2026, there is no federal Section 25D credit for a system you own. Price the project on the gross cost, ask your state energy office and utility what incentives still apply, and make every installer restate its payback without a federal credit.
If your installation was completed in 2025, claim it on Form 5695 for that tax year and track any carryforward. State incentive programs have their own urgency: New Jersey’s ADI values, Massachusetts SMART blocks and Illinois Shines blocks all step down or close as capacity fills. Run the state-specific incentive math before delaying.
If you are considering Tesla Solar Roof, GAF Energy Timberline Solar, or rack-mounted panels for a 2026 install, no federal homeowner credit applies to any of the three. The solar shingles vs panels decision now comes down to gross price, appearance, and roof condition.
For installer selection, see our how to choose solar installer guide. For equipment, the best solar panel brands review covers module makers, and for full warranty stack analysis, see solar roof warranty 2026.
For homeowner-owned systems, the 30% federal solar credit ended with installations completed in 2025. State credits, SRECs, and net metering are now the main incentive levers, and the owner of a leased or PPA system may still claim a commercial credit under the deadlines described above, which would show up only in the contract rate. Get the documentation right for any 2025 claim, price 2026 projects on gross cost, and confirm current rules with the IRS and a tax professional. The full set of related solar and roofing topics is indexed in our learn library.
Frequently asked questions
Is there a federal solar tax credit in 2026?
Not for a homeowner-owned system. The Section 25D Residential Clean Energy Credit ended for expenditures made after December 31, 2025 under Public Law 119-21, and the IRS treats an expenditure as made when the installation is completed. State incentives are separate and may still apply.
I paid for my solar roof in 2025 but it was installed in 2026. Do I qualify?
No. IRS FS-2025-05 says that if installation is completed after December 31, 2025, the expenditure is treated as made after that date, which prevents a Section 25D claim even if you paid in 2025.
Can I still claim the credit for a system completed in 2025?
Yes. A qualifying system whose installation was completed by December 31, 2025 is claimed on Form 5695, Part I, for that tax year at 30% of qualifying cost, and any unused credit carries forward. Ask a tax professional if you missed the claim.
Can a solar lease or PPA still get a federal credit?
Possibly, through the company that owns the system rather than the homeowner. For leased or PPA rooftop solar, the owner may still claim the commercial Section 48E credit if a solar facility that begins construction after July 4, 2026 is placed in service by December 31, 2027, subject to foreign-entity rules. The lease bar in sections 48E(i) and 45Y(h), as enacted, names solar water heating and small wind, not rooftop PV, and a technical correction is possible, so confirm with a tax advisor. Any benefit would show up in the contract rate.