The Inflation Reduction Act provided a 30% federal income tax credit (Section 25D, IRS) for residential solar installations through 2025, stepping down to 26% (2033) and 22% (2034), then expiring. This applies to purchased and financed systems. A $20,000 system earns $6,000 in tax credits.
How the Section 25D residential solar tax credit worked (expired after 2025 for purchases)
For homeowners who purchased and installed a residential solar system, the federal Section 25D credit (IRS) expired for systems installed after December 31, 2025. A system purchased and installed in 2026 does not qualify for a federal residential tax credit under Section 25D. However, if you use a solar lease or PPA, the installer/owner may claim a 30% credit under the commercial Section 48E (IRS) — provided construction begins before July 4, 2026, or the system is in service by December 31, 2027 — and often passes those savings through as a lower rate. State and utility incentives remain unaffected. This is general information, not tax advice.
What qualifies for the credit
Rooftop solar photovoltaic systems on residential properties. When the §25D credit applied it covered: battery storage, inverters, wiring, permitting, labor, and equipment installation. It expired for homeowner-purchased systems installed after December 31, 2025. Does NOT include: lawn equipment, swimming pool heaters (unless solar thermal), portable systems. System must be new (first use), installed on your primary or secondary residence.
Who can claim the credit
Homeowners who purchase a solar system (cash or financed). Renters cannot claim (landlord can). Business owners cannot claim (separate commercial ITC exists). System must be installed in the US on US property. Your tax liability limits: if you owe $0 in taxes, you don't claim the $6,000, it carries to next year. Unused credits don't expire (unlimited carryforward).
Cash rebates vs tax credits
Federal tax credit for a purchased system: The residential Section 25D credit (IRS) expired for systems installed after December 31, 2025, so a 2026 purchase earns no federal credit. If you use a solar lease or PPA, the installer may claim a 30% credit under Section 48E (IRS) and pass savings through as a lower rate. State/utility rebates: $2-5k immediately from the installer (available in some states). Example: $20k system with $3k state rebate — state rebate reduces your out-of-pocket immediately; no federal purchase credit applies in 2026. Lease/PPA options may offer rate savings reflecting the installer's Section 48E credit.
Tax credit phase-out and timeline
The federal residential solar tax credit (Section 25D, IRS) applied to purchased systems through 2025 and has now expired for homeowner-purchased systems installed in 2026 or later. If you are considering a solar lease or PPA, the installer may still capture a 30% credit under the commercial Section 48E (IRS) — provided construction begins before July 4, 2026, or the system is in service by December 31, 2027 — and often passes savings through as a lower rate. State and utility incentives remain unaffected. This is general information, not tax advice.
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Get Free Quotes →Frequently Asked Questions
Can I claim the tax credit if I finance the solar system?
Yes—the credit applies to purchase price, not how you pay. Cash, loan, lease, or power-purchase agreement all qualify. Monthly payments don't affect the credit.
What if the tax credit is larger than my tax liability?
Unused credit carries forward to future tax years indefinitely. Example: $6,000 credit but only $3,000 tax owed → claim $3,000 this year, carry $3,000 to next year.
Do I have to own the home to claim the credit?
Yes—homeowners and primary/secondary homeowners qualify. Renters cannot claim; landlords can. You must own the property and live in the US.
Can married couples filing separately claim the credit?
No—if you claim a dependent, one spouse must claim the full credit on a joint return. If filing separately, you split the credit equally.
Is the tax credit refundable?
No—it's non-refundable, meaning it can't exceed your tax liability. Unused credits carry forward indefinitely but don't result in a refund if you owe $0 tax.