Solar Tax Credits 2026: Federal 25D Status + State Incentives
Going solar in 2026 requires cleaner incentive math than older solar pages suggest. The old 30% federal homeowner credit should not be assumed for new residential systems placed in service after December 31, 2025, but state-level rebates, SRECs, property tax exemptions, sales tax exemptions, and utility programs can still materially reduce project cost. This guide breaks down what to verify before signing.
May 2026 Official Source Check
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Federal Residential Credit Status
The federal solar Investment Tax Credit was historically the single largest incentive for homeowner-owned solar. Current IRS guidance under the One, Big, Beautiful Bill Act changed the 2026 planning baseline: Section 25D residential clean energy credits are not available for property placed in service after December 31, 2025.
For most new homeowner-owned residential systems completed in 2026, model the federal residential credit at 0% unless a tax professional confirms a specific eligible carryforward or transition situation. State incentives and utility economics now carry more of the return.
What the Old Credit Covered
For qualifying pre-deadline systems, the residential credit covered a broad range of costs associated with solar and battery installations. For new 2026 residential systems, do not treat those historical rules as automatically available.
For a typical 8 kW system costing $24,000 before incentives, replacing an outdated 30% federal assumption with a 0% 2026 default changes the model by $7,200. Use our Solar Savings Calculator to estimate the project based on state incentives, utility rates, and export compensation.
| Year | Residential Federal Credit | Credit on $25K System | Net Cost |
|---|---|---|---|
| Placed in service by Dec. 31, 2025 | 30% if eligible | $7,500 | $17,500 |
| Placed in service in 2026 | 0% for most new residential projects | $0 | $25,000 |
| Business-owned / third-party-owned | Separate rules | Verify | Depends |
How to Claim the Federal Solar Tax Credit
Claiming any residential solar credit requires eligibility first. For qualifying pre-2026 property or valid carryforward situations, keep invoices, placed-in-service documentation, product details, and Form 5695 support. For new 2026 residential property, verify eligibility before treating the old ITC as available.
File IRS Form 5695 (Residential Energy Credits) with your federal tax return for the year the system was placed in service. The system is considered placed in service when your utility grants permission to operate, not when installation is physically complete. Keep all invoices, contracts, and the interconnection agreement as supporting documentation.
Eligible carryforward from qualifying property can still matter even after the deadline. That is different from claiming a new credit on a new 2026 installation. For help understanding your tax liability, LevyIO's Tax Bracket Calculator can show how credits reduce tax when they actually apply.
State Solar Tax Credits
Many states offer their own tax credits or rebates independent of the expired federal homeowner credit. These rules vary by state and may be based on a percentage of cost, a fixed dollar amount per watt, income, utility territory, or available program funding.
Notable State Tax Credits in 2026
- New York: 25% state tax credit, up to $5,000 for residential systems
- South Carolina: 25% state tax credit, no cap, with 10-year carryforward
- Arizona: 25% state tax credit, up to $1,000 (modest but stacks with high solar production)
- Massachusetts: 15% state tax credit, up to $1,000 (stacks with SMART and SRECs)
- Oregon: $2,500 state tax credit for solar, $2,500 additional for battery storage
- Utah: 25% state tax credit, up to $1,600
- Iowa: 15% state tax credit, up to $5,000, available through 2027
Check the Database of State Incentives for Renewables and Efficiency (DSIRE) at dsireusa.org for the most current information. State policies change frequently, and new programs are added regularly. Some states have annual budget caps that can exhaust funding before the end of the fiscal year.
Solar Renewable Energy Certificates (SRECs)
SRECs are tradeable certificates that represent the environmental attributes of solar electricity generation. For every 1,000 kWh (1 MWh) your solar panels produce, you earn one SREC. You can sell these certificates on the open market to utilities that need them to meet renewable portfolio standard (RPS) requirements.
SREC values vary dramatically by state and market conditions. In 2026, approximate values are: New Jersey TRECs at $80-$90 per MWh, Massachusetts SRECs at $200-$280 per MWh, Maryland SRECs at $50-$70 per MWh, Pennsylvania SRECs at $15-$25 per MWh, Illinois SRECs through the Adjustable Block Program at $60-$80 per MWh, and Washington D.C. SRECs at $300-$400 per MWh.
For a typical 8 kW system producing 10 MWh per year in an active SREC market, certificate income can materially improve payback. Program values vary sharply by state and vintage, so verify current market pricing before counting it in a proposal. This is separate from electricity savings and any tax credit that actually applies.
Property and Sales Tax Exemptions
Solar panels typically increase your home value by $15,000 to $25,000 for a standard residential system. Without a property tax exemption, this increase would raise your annual property tax bill by $150 to $500 depending on your local tax rate. Fortunately, over 35 states offer full or partial property tax exemptions for solar energy systems.
States with 100% property tax exemptions include California, Colorado, Connecticut, Florida, Maryland, Massachusetts, New Jersey, New York, Texas, and Virginia, among others. Some exemptions are permanent, while others last 10 to 20 years. Check your county assessor's office for local implementation details. To see how property taxes affect your overall housing costs, try LevyIO's Property Tax Calculator.
Sales tax exemptions save you an additional 4-10% on equipment costs. At least 25 states exempt solar equipment from state sales tax. For a $25,000 system in a state with 7% sales tax, this exemption saves $1,750 immediately.
Utility Rebates and Performance Incentives
Many utilities offer direct rebates or performance-based incentives (PBIs) for solar installations. Rebates provide an upfront payment per watt installed, typically $0.10 to $0.50 per watt. Performance incentives pay you per kilowatt-hour generated over a multi-year period.
Massachusetts' SMART (Solar Massachusetts Renewable Target) program pays $0.06-$0.12 per kWh generated for 10 to 20 years, depending on system size and adders for battery storage, community solar, and low-income projects. An 8 kW system generating 10,000 kWh annually can earn $600-$1,200 per year through SMART alone.
New York's NY-Sun program provides upfront incentives that vary by block, utility territory, and funding status. Combined with the state tax credit and electricity savings, New York homeowners can still reduce out-of-pocket solar cost meaningfully even without assuming the old federal residential ITC.
Contact your utility directly or check the DSIRE database for available programs in your area. Many utilities also offer net metering, which credits you for excess solar electricity sent to the grid. Our Solar Savings Calculator factors in net metering savings alongside other incentives.
Battery Storage Incentives
Standalone residential battery storage was included under the federal residential clean energy credit through 2025. For new 2026 homeowner-owned residential battery projects, do not assume the old 30% federal credit. Several states and utilities offer battery-specific incentives or demand-response payments that can still make storage attractive.
California's Self-Generation Incentive Program (SGIP) can provide battery incentives, with higher rates for equity customers and homes in qualifying resiliency situations. Always check the current program handbook and utility administrator before assuming a specific per-kWh value.
Oregon offers a $2,500 state tax credit specifically for battery storage, separate from the solar credit. Connecticut provides $200 per kWh through its Residential Battery program. Maryland's Energy Storage Tax Credit offers 30% of costs up to $5,000. Vermont's Bring Your Own Device program pays battery owners up to $10,500 over 10 years for participating in grid stabilization events.
Virtual power plant (VPP) programs from utilities add recurring revenue. Some programs pay $30-$75 per month for allowing the utility to dispatch your battery during peak demand. Use our Solar Battery Calculator to model battery costs and savings with all available incentives.
Top 10 States for Solar Incentives in 2026
With the federal residential ITC no longer the default for new 2026 homeowner projects, the total incentive package varies dramatically by state. Here are states where solar can still offer strong financial returns because of state programs, utility rules, SRECs, or high electricity prices.
| Rank | State | Key Incentives | Total Savings* |
|---|---|---|---|
| 1 | Massachusetts | SMART, state credit, high electricity rates | Strong |
| 2 | New York | NY-Sun, state credit, high rates | Strong |
| 3 | New Jersey | SREC/SuSI-style incentives, property/sales exemptions | Strong |
| 4 | California | High rates, SGIP battery programs, NEM 3.0 battery economics | Market-specific |
| 5 | South Carolina | State credit, utility rules, high sun | Strong if eligible |
| 6 | Maryland | State programs and SRECs | Strong if eligible |
| 7 | Illinois | Illinois Shines / adjustable block incentives | Strong if awarded |
| 8 | Oregon | State and utility rebates | Program-dependent |
| 9 | Connecticut | Battery programs, high rates, exemptions | Program-dependent |
| 10 | Iowa | Utility rules and state/local programs | Verify current rules |
*Total savings shown as percentage of system cost reduced through all combined incentives. Actual savings depend on system size, cost, and individual tax situation.
Frequently Asked Questions
What is the federal solar tax credit for 2026?
For most new homeowner-owned residential systems placed in service in 2026, the federal residential clean energy credit is not available. Current IRS guidance says Section 25D is not available for property placed in service after December 31, 2025.
Can I claim the solar tax credit if I already owe no federal taxes?
Unused eligible credit from qualifying pre-2026 property may carry forward under normal IRS rules. That is different from claiming a new credit on a 2026 installation.
Which states have the best solar incentives in 2026?
Massachusetts, New York, and New Jersey lead with combined incentives reducing costs by 55-70%. South Carolina, California, Maryland, Illinois, Oregon, Connecticut, and Iowa round out the top ten. Use our Solar Savings Calculator to model your state-specific savings.
Do solar panels increase my property taxes?
In most states, no. Over 35 states offer property tax exemptions for solar systems, so the added home value from solar does not increase your property tax bill. Check your state for specific rules and exemption durations.
Calculate Your Solar Savings with All Incentives
See exactly how much you can save with federal, state, and local solar incentives.