POLICY · FEDERAL

The Federal Solar Credit in 2026

The 30% federal Residential Clean Energy Credit expired for systems placed in service after December 31, 2025. Cash and loan installs in 2026 do not qualify. Third-party-owned systems (leases and power purchase agreements) sit under a separate provision and still receive a credit, but it goes to the system owner, not the homeowner. Any 2026 quote that still shows a 30% federal tax credit line item for an owned-and-installed residential system is using stale numbers.

The Residential Clean Energy Credit, codified at 26 U.S.C. § 25D, offered a nonrefundable federal income-tax credit equal to 30% of qualified expenditures on a residential solar electric system installed at a taxpayer’s primary or secondary U.S. residence. The credit applied to the all-in installed cost: panels, inverters, racking and mounting hardware, balance-of-system equipment, permitting fees, and labor. It also covered battery storage with a capacity of 3 kWh or more installed in connection with the system, per the Inflation Reduction Act’s 2022 expansion of qualifying property. IRS, Residential Clean Energy Credit .

What qualified

• Qualified solar electric property. Panels and the equipment used to generate electricity for a residence. The system had to be new (not previously used) and installed at a U.S. dwelling the taxpayer used as a residence.
• Battery storage of 3 kWh or more. Standalone or paired with solar. Eligibility nuances: the IRS treated the storage as qualified property in its own right after the 2022 IRA expansion, so a battery added in a later year could qualify even if the panels were installed earlier.
• Associated labor and balance-of-system costs. Installation labor, on-site preparation, assembly, and the wiring, racking, and inverter equipment necessary to interconnect the system to the home.

What did not qualify

• Re-roofing or structural roof repairs unrelated to mounting the array. The IRS guidance is explicit that traditional roofing materials (shingles, tiles, etc.) used as part of the roof do not qualify as solar electric property, even when re-roofing is required before an install.
• Systems used to power non-residential portions of a property (a pure business building, for example).
• Lease and PPA payments. The homeowner in a third-party-owned (TPO) arrangement does not own the system, so the 25D residential credit never applied. The Section 48E commercial credit applied to the system owner.

Public Law 119-21, signed July 4, 2025, accelerated the termination of Section 25D. Where the prior IRA schedule had the residential credit stepping down through 2034, P.L. 119-21 ended it entirely for property placed in service after December 31, 2025. The IRS issued a dedicated FAQ on the change. IRS FAQ on P.L. 119-21 .

The “placed in service” date is what controls. A system signed for in late 2025 but not energized until 2026 does not qualify. The IRS uses the date the system is ready and available for its intended use, which for solar generally tracks the utility’s permission to operate (PTO), not the contract date or the install completion date. Quotes that promise the credit on a system that will not see PTO before January 1, 2026 are quoting a credit the buyer will not receive.

Section 48E, the commercial clean electricity credit, is a separate statute. It still applies to systems owned by a third party (a leasing company or PPA provider) that places the system in service and uses it to sell electricity to the homeowner. The credit goes to the system owner; the homeowner sees the value, if at all, only through whatever price the lease or PPA reflects.

The 30% credit was the single largest line item shrinking the out-of-pocket cost of a residential install. On a $22,000 gross install, the credit reduced effective cost to roughly $15,400 before state incentives. Removing it shifts the breakeven calculation by a meaningful margin.

A worked example for a 7 kW system in northern Illinois, using the same reference assumptions as Summit’s Lake Zurich diagnostic:

• Pre-incentive install cost: $19,600 to $23,800 (at $2.80 to $3.40 per watt, per NREL’s 2024 benchmark).
• Under the old 25D credit (pre-2026): 30% reduction, roughly $5,880 to $7,140 off, plus any Illinois Shines REC value and ComEd Smart Inverter Rebate, brought net out-of-pocket below $9,000 in many cases.
• In 2026 (no 25D credit): the 30% line is gone. Net out-of-pocket relies entirely on Illinois Shines REC payments and any utility-specific rebate, which together generally cover a smaller share than the federal credit alone did.

In practical terms, a Lake Zurich cash install that penciled at a seven to eight year payback under the old credit lands closer to nine to eleven years without it, holding everything else constant. The math still works for some households; it stops working for households on the edge.

Section 48E credits accrue to the entity that owns the system. In a lease or PPA, that is the leasing company or PPA provider, not the homeowner on the roof. The homeowner sees the value indirectly: a leasing company taking the 48E credit can, in principle, offer a lower monthly lease payment than it could without the credit. Whether that actually happens in the marketplace is a different question, and it depends on the leasing company’s pricing discipline, not the homeowner’s.

The relevant guidance is in Treasury’s and IRS’s 48E regulations, which treat residential rooftop systems leased to homeowners as commercial property for tax purposes when ownership rests with the lessor.

Several caveats apply to systems that genuinely qualified for the 25D credit before the cutoff.

• Nonrefundable. The credit could reduce tax liability to zero but not below. A homeowner with insufficient tax liability in the install year carried unused credit forward.
• Carry-forward. Unused Section 25D credit could be carried forward to subsequent tax years while the credit remained in force. The interaction with the December 31, 2025 termination is a question for a tax preparer; the carry-forward existed for credits earned in qualifying years.
• Recapture. The credit was generally not subject to recapture on a typical residential sale, but specific facts (conversion from primary residence to rental, for instance) could complicate the analysis.
• Verify with a tax preparer. Nothing on this page is tax advice. Any homeowner relying on a credit (or evaluating whether a 2025-signed system genuinely placed in service in time) should verify with a licensed preparer reading the actual IRS guidance, not an installer’s summary.

What to do if a 2026 quote shows the 30% credit

Push back at the line item. A quote that still shows a 30% federal credit for a 2026 install is either using outdated template content or counting on the homeowner not knowing the credit ended. Neither answer is a reason to feel good about the rest of the proposal. Summit’s line-by-line guide to reading a solar quote walks through what the rest of the document should show.