Solar Tax Credit in 2026: What Changed and What It Means for You

On January 1, 2026, the federal solar investment tax credit (ITC) for homeowner-purchased residential systems dropped from 30% to 0%. Not 22%. Not 10%. Zero.

This has created a wave of panic across Reddit, solar forums, and — let’s be honest — a lot of misleading marketing from solar companies trying to sell you a lease. So let’s cut through the noise and talk about what actually changed, what still exists, and why solar in 2026 is still one of the best investments you can make for your home.

What Section 25D Was (and Why It’s Gone)

Section 25D of the Internal Revenue Code was the tax credit that let homeowners deduct 30% of their solar installation cost from their federal income taxes. Buy a $30,000 system, get $9,000 back on your taxes. Simple. Powerful. It drove the residential solar boom from 2006 through 2025.

The credit was originally set to step down gradually — 30% through 2032, then 26% in 2033, 22% in 2034, and 0% in 2035. But the political landscape shifted. The Inflation Reduction Act extensions were partially rolled back, and Section 25D expired on December 31, 2025.

Here’s what that means in plain English: if you buy solar panels with your own money and put them on your house, you get no federal tax credit. The system has to have been placed in service (fully installed and operational) by December 31, 2025 to qualify.

If an installer is telling you the 30% credit still exists for homeowner-purchased systems, they’re either uninformed or lying to you. Walk away.

What Section 48E Still Offers (Through December 2027)

Here’s where it gets interesting — and where a lot of people are confused.

Section 48E, the clean energy production and investment tax credit, is still alive. It provides a 30% tax credit for solar installations through December 31, 2027. But there’s a catch: it applies to commercial entities and third-party ownership (TPO) arrangements, not direct homeowner purchases.

What does this mean for you? It means:

• Solar leases still benefit from a 30% tax credit (the leasing company claims it)
• Power Purchase Agreements (PPAs) still benefit from a 30% tax credit
• Community solar subscriptions may still carry the benefit
• You buying panels on your own get nothing from the feds

The solar lease companies know this. It’s why every major installer is pushing leases and PPAs hard right now. They can claim the 48E credit, use it to subsidize your monthly payment, and still make a healthy profit.

Should You Lease Instead of Buying?

Maybe. But probably not for the reasons the salespeople are giving you.

Here’s the math on a typical 8kW system:

Scenario	Total Cost	25-Year Net Cost	You Own It?
Buy outright (2026, no credit)	$8,400 semi-DIY	$8,400	Yes
Solar lease (TPO with 48E)	$0 down, $125/mo	$37,500	No
Turnkey installer (2026, no credit)	$22,400	$22,400	Yes
Turnkey installer (2025, with 30% credit)	$22,400 - $6,720 = $15,680	$15,680	Yes

Look at that table carefully. The semi-DIY purchase price in 2026 without any tax credit is lower than the turnkey price in 2025 with the credit. Equipment prices have dropped that much.

The lease looks cheap month-to-month, but over 25 years you’re paying $37,500 for a system worth $8,400 in parts — and you don’t even own it. When you sell your house, the lease transfers to the buyer (if they agree), which complicates your sale.

Buying outright — especially at today’s wholesale equipment prices — is still the better deal for most homeowners.

Why Equipment Price Drops More Than Compensate

This is the part nobody talks about. While everyone is mourning the tax credit, solar equipment prices have quietly collapsed.

Here’s what’s happened to wholesale panel prices since the ITC was at its peak:

Year	Avg Panel Price ($/W)	8kW System Panels	With 30% ITC
2020	$0.45	$3,600	$2,520
2022	$0.38	$3,040	$2,128
2024	$0.28	$2,240	$1,568
2026	$0.18	$1,440	N/A — no credit

Panels in 2026 cost 60% less than they did in 2020. An 8kW system’s panels cost $1,440 at wholesale. Even without the tax credit, you’re paying less for the panels themselves than you would have in 2020 after the credit.

And it’s not just panels. Inverters, racking, and batteries have all dropped significantly:

• Hybrid inverters: The EG4 18kPV is $4,848. Comparable units were $7,000-$9,000 in 2021.
• Racking: IronRidge XR100 runs about $0.10/W. It was $0.18/W three years ago.
• Batteries: LFP battery packs have dropped below $200/kWh. They were $400-$500/kWh in 2022.

The tax credit mattered when equipment was expensive. Equipment isn’t expensive anymore. A complete 8kW system — panels, inverter, racking, wiring, BOS — runs about $5,600-$6,800 wholesale. Add $2,000-$3,500 for labor-only installation, and you’re all-in at $8,000-$10,300 without a single dollar of tax credit.

That’s a 4-6 year payback in most markets. Still excellent.

State-Level Incentives That Still Exist

The federal credit gets all the headlines, but state and local incentives are still very much alive. Here’s what’s available in our three core markets:

North Carolina

• Property tax exemption: 80% of the appraised value of your solar system is exempt from property taxes. A $10,000 system adds $10,000 in home value but only $2,000 is taxable. This is automatic — no application needed.
• Duke Energy net metering: You get credited for excess production at the retail rate (currently $0.12-$0.14/kWh depending on your plan). Duke has been fighting to reduce this, but the current rate structure is locked through at least 2027.
• Sales tax exemption: Solar equipment is exempt from North Carolina’s 4.75% state sales tax.

Arizona

• Residential solar tax credit: Arizona offers a state income tax credit of 25% of the cost of a solar system, up to $1,000. It’s not huge, but it’s something.
• Property tax exemption: 100% of the added value from solar is exempt from property taxes. Buy a $10,000 system, your property taxes don’t go up at all.
• APS and SRP rebates: Both major utilities still offer modest rebates ($0.10-$0.20/W depending on the program and timing). Check current availability — these programs run out of funding periodically.
• Net billing: Arizona moved from full net metering to net billing in 2022. Export rates are lower than retail ($0.05-$0.09/kWh depending on utility and time of export), but the abundant sunshine still makes solar math work — especially with a battery to shift production to peak rates.

Texas

• No state income tax: This means there’s no state solar tax credit (no income tax to credit against), but it also means no state income tax on your solar savings.
• Property tax exemption: 100% of the appraised value of your solar system is exempt from property taxes. This is a big deal in Texas, where property tax rates run 1.8-2.5%.
• Utility rebates: Austin Energy, CPS Energy (San Antonio), and several co-ops offer rebates ranging from $0.50-$1.00/W. These are significant — a $0.75/W rebate on an 8kW system is $6,000 back.
• Oncor smart export rates: In the deregulated ERCOT market, some retail electricity providers offer competitive export credits for solar production. Shop around — rates vary wildly.

When you stack state incentives on top of the already-low equipment costs, the post-credit economics are still compelling.

The Real Math: Solar ROI in 2026 Without the Federal Credit

Let’s run the actual numbers for a typical 8kW system in each of our three markets. We’re using semi-DIY pricing (wholesale equipment + labor-only installation).

North Carolina (Duke Energy territory)

Line Item	Cost
Panels (8kW, Canadian Solar 440W)	$1,440
Inverter (EG4 18kPV)	$4,848
Racking (IronRidge)	$800
BOS (wiring, breakers, conduit)	$600
Labor-only install	$3,000
Permitting	$400
Total	$11,088
NC sales tax exemption savings	-$527
Net cost	$10,561

Annual production: ~11,200 kWh. At $0.13/kWh average, that’s $1,456/year in electricity savings.

Simple payback: 7.3 years. Over 25 years (accounting for 0.5% annual panel degradation and 3% utility rate escalation), the system produces $52,800 in value against a $10,561 investment. That’s a 5:1 return.

Arizona (APS territory)

Line Item	Cost
Panels (8kW, Canadian Solar 440W)	$1,440
Inverter (EG4 18kPV)	$4,848
Racking (IronRidge)	$800
BOS	$600
Labor-only install	$2,800
Permitting	$350
Total	$10,838
AZ state tax credit	-$1,000
Net cost	$9,838

Annual production: ~13,600 kWh. With net billing at blended $0.10/kWh, that’s $1,360/year in savings. With a battery to shift to peak rates, closer to $1,800/year.

Simple payback: 5.5-7.2 years depending on battery strategy.

Texas (ERCOT territory, Austin Energy)

Line Item	Cost
Panels (8kW, Canadian Solar 440W)	$1,440
Inverter (EG4 18kPV)	$4,848
Racking (IronRidge)	$800
BOS	$600
Labor-only install	$2,600
Permitting	$300
Total	$10,588
Austin Energy rebate ($0.75/W)	-$6,000
Net cost	$4,588

Annual production: ~12,000 kWh. At $0.12/kWh average, that’s $1,440/year.

Simple payback: 3.2 years. In Austin, solar is practically a no-brainer even without the federal credit.

What the TPO Route Actually Looks Like

Since Section 48E still provides a 30% credit for third-party-owned systems, some homeowners are considering leases and PPAs as a workaround. Let’s walk through what that actually means.

In a solar lease, a company installs panels on your roof and you pay a fixed monthly fee (typically $100-$175/month for an 8kW system). The company owns the panels, claims the 48E credit, and handles maintenance. Your monthly payment is lower than your old electric bill, so you save money from day one.

In a PPA (Power Purchase Agreement), the setup is similar, but instead of a fixed monthly fee, you pay for the electricity the panels produce at a set rate (typically $0.08-$0.12/kWh). If the panels produce more, you pay more. If they produce less, you pay less.

Both arrangements have the same fundamental problem: you don’t own the asset. Over 25 years, you’ll pay $30,000-$52,500 for a system that cost $8,000-$10,000 to build. The leasing company pockets the tax credit, the depreciation benefit, and a healthy profit margin. You get a modest reduction in your electric bill.

The lease makes sense in exactly one scenario: you have zero capital and can’t qualify for any loan. In every other scenario, buying the equipment yourself — even at a slightly higher effective cost without the credit — produces a dramatically better financial outcome because you capture 100% of the production value from year one.

The “Solar Loan” Trap

Watch out for installers offering “solar loans” that look like purchases but function like leases. Some dealer-fee-loaded loans add 20-30% to the system cost through origination fees that are rolled into the principal. A $22,000 system financed through a dealer-fee loan at “1.99% APR” might actually cost you $28,000-$30,000 over the loan term.

Always ask for the cash price separate from any financing. If the cash price and the financed price are more than 5% apart, the financing has embedded fees. You’re almost always better off with a home equity loan or HELOC at a market rate.

What About Waiting for the Credit to Come Back?

We hear this a lot: “Maybe I should wait and see if Congress reinstates the ITC.”

Here’s our take: don’t hold your breath, and don’t let the possibility of a future credit stop you from saving money today.

Every month you wait is a month you’re paying full price for electricity. If you’re paying $200/month to your utility, that’s $2,400/year you’re not getting back. Wait two years hoping for a credit, and you’ve burned $4,800 in electricity costs that solar would have eliminated.

Even if the credit comes back (and there’s no serious legislation proposing it right now), it wouldn’t apply retroactively to systems installed during the gap. You’d benefit only from that point forward, and you’d have lost years of production in the meantime.

There’s also an opportunity cost to waiting. Equipment prices may continue to drop, but the steepest declines are behind us. The difference between today’s prices and next year’s prices is likely 5-10%, not the 30-40% drops we saw from 2021 to 2024. Meanwhile, utility rates keep climbing at 3-4% per year. Every year you wait, the electricity you’re buying gets more expensive while the savings from going solar stay roughly the same.

The math works today. Don’t let hypothetical future policy override concrete present savings.

Common Myths About the 2026 Tax Credit Situation

Myth: “Solar doesn’t make sense without the tax credit.” Reality: The credit was a nice bonus, not a requirement. Solar payback periods have gotten shorter even without the credit because equipment costs fell faster than the credit disappeared. A 6-7 year payback is still a 15-18% annualized return on your investment.

Myth: “I should have gone solar in 2025.” Reality: Maybe, but not by as much as you think. A $22,000 turnkey system with a 30% credit in 2025 cost you $15,400 net. A $10,500 semi-DIY system with no credit in 2026 costs you $10,500. The 2026 semi-DIY route is actually cheaper. The credit only helped if you were comparing within the same installation model.

Myth: “The credit will come back — politicians need it for climate goals.” Reality: The current Congress has shown no appetite for reinstating residential clean energy credits. Even if a future Congress does, the legislative timeline means any new credit is likely 2-4 years away at best. That’s $5,000-$10,000 in electricity costs you’d absorb while waiting.

The Bottom Line

The Section 25D tax credit is gone. That’s real, and it’s a loss of a meaningful incentive. But three things have changed that more than compensate:

1. Equipment costs have dropped 40-60% since the credit was at its peak. The net cost of going solar in 2026 without the credit is lower than the net cost in 2020 with it.
2. State incentives are still alive. Property tax exemptions, utility rebates, and state credits still shave thousands off your cost depending on where you live.
3. The semi-DIY model slashes installation costs. When you’re not paying a turnkey installer’s 100-200% markup on equipment, the absence of the federal credit barely moves the needle.

Solar in 2026 is still a 5-8 year payback investment that generates 4-6x returns over 25 years. The tax credit made good economics great. Without it, the economics are still good. Don’t let the headlines scare you away from a decision that will save you tens of thousands of dollars.

Design your system and see your real costs

Related Articles

Policy & Incentives

Net Metering Explained: What's Left in 2026 and What It Means for Your Solar ROI

Net metering is disappearing across the US. Here's the current state-by-state reality and how it affects your solar economics.

Nick Vossburg · Mar 20, 2026 · 10 min read