Solar Tax Credits Explained: What Homeowners Can Claim in 2026

Published April 1, 2026  ·  6 min read

For more than two decades, the federal solar tax credit was the single biggest financial reason to go solar. A 30% credit on a $20,000 system meant $6,000 back at tax time. That changed on July 4, 2025, when the One Big Beautiful Bill Act eliminated the residential credit effective December 31, 2025.

The good news: solar didn't stop making financial sense. State incentives, property tax exemptions, net metering, and performance-based programs are still very much alive. They're just more varied and harder to find than one national credit was. This article maps out exactly what's available in 2026 and how each type of incentive works.

What happened to the federal solar tax credit?

The Residential Clean Energy Credit (Section 25D) was originally set to run through 2034, stepping down from 30% to 26% to 22%. The One Big Beautiful Bill Act, signed July 4, 2025, cut it nearly a decade early. For any homeowner-owned solar system installed on or after January 1, 2026, there is no federal tax credit.

There is one exception worth knowing: if you lease solar panels or use a Power Purchase Agreement (PPA), the solar company (not you) owns the system. They can claim the commercial solar credit, which runs through 2027. They typically pass some of that savings to customers in the form of lower monthly payments. If you're comparing a lease to a purchase in 2026, this is a real factor in the math.

If you installed solar in 2025 and haven't filed your taxes yet, you can still claim the full 30% credit on your 2025 return. Use IRS Form 5695. The credit is non-refundable, meaning you can only claim up to what you owe in federal taxes, but unused credit carries forward to future years.

State tax credits: the strongest replacement

Several states offer their own solar tax credits that work similarly to the federal credit. These reduce your state income tax liability by a percentage of your installation cost. The strongest programs in 2026:

• New York offers a 25% credit up to $5,000. One of the most generous state programs in the country. Combined with the NY-Sun Initiative rebates and a strong net metering policy, New York remains one of the best states for solar even without the federal credit.
• South Carolina offers a 25% credit up to $3,500 per year. The credit can be spread across up to 10 years if you can't use it all at once, making it accessible even for homeowners with modest tax liability.
• Massachusetts offers a 15% credit up to $1,000. Smaller than New York's but stacks with the state's SMART performance payment program, which pays ongoing income for energy produced.
• New Mexico offers a 10% credit up to $6,000 total. Combines well with excellent sun hours (6.8 hrs/day) and moderate electricity rates.
• Hawaii offers a 35% credit up to $5,000. Hawaii's state credit partially offsets the loss of the federal credit for one of the most solar-favorable markets in the country.

Check your state's department of taxation or DSIREUSA.org for the current rules in your state. Program details change and eligibility requirements vary.

Property tax exemptions

Adding solar increases your home's value. Studies show an average increase of about 4%. Without a property tax exemption, that added value would raise your annual tax bill. Most states have addressed this.

Over 30 states currently offer property tax exemptions for solar installations, meaning your home's assessed value won't increase when you add panels. This is a permanent, ongoing benefit that compounds over the life of your system. States with strong property tax exemptions include Arizona, California, Colorado, Florida, Massachusetts, New Jersey, New York, and Texas.

Some exemptions are statewide; others are county or municipality-specific. Check with your local assessor before installation to confirm what applies in your area.

Sales tax exemptions

Many states exempt solar equipment from state sales tax. On a $20,000 system in a state with a 6% sales tax, that's $1,200 back at purchase with no forms and no waiting. States with full or partial sales tax exemptions for solar include Arizona, Colorado, Florida, Maryland, Massachusetts, Minnesota, New Jersey, New York, and Texas, among others.

This is one of the easiest incentives to capture — a qualified installer will apply the exemption automatically. Just confirm they're doing so before signing a contract.

Net metering: ongoing savings from excess production

Net metering isn't a tax credit, but it's often worth more than a state tax credit over the life of a system. When your panels produce more electricity than you're using, the excess goes to the grid and your utility credits your account. In states with full retail net metering, that credit is worth the same as the electricity you'd otherwise buy.

Net metering policies vary significantly by state and utility. The best programs (Massachusetts, New Jersey, New York, Maryland) offer full retail credit. California's NEM 3.0, adopted in 2023, reduced export credits significantly, which is why battery storage has become nearly essential in California. Some states — particularly in the South — have weak or no net metering requirements.

Before finalizing a solar purchase, ask your installer exactly how your utility compensates for excess generation. It has a major impact on your actual savings.

SRECs and performance payments

Solar Renewable Energy Credits (SRECs) are certificates your solar system generates — one per megawatt-hour of electricity produced. In states with active SREC markets, utilities are required to buy a certain number of SRECs each year to meet renewable energy standards. You sell your SRECs for additional income on top of your electricity savings.

SREC values vary widely by state and change over time based on supply and demand. Active markets in 2026 include Washington D.C. (among the highest values), New Jersey, Maryland, Ohio, Pennsylvania, Delaware, and Virginia. A typical residential system in New Jersey earns $300 to $600 per year in SRECs alone.

Several states also run structured performance payment programs that work similarly:

• Illinois Shines (Adjustable Block Program) pays $10,000 to $12,000 over 15 years for an average residential system.
• Massachusetts SMART program provides a fixed monthly payment per kWh produced for 10 years.
• Minnesota Solar*Rewards (Xcel Energy customers) pays an ongoing per-kWh premium on top of net metering.

Utility rebates

Many utilities offer their own one-time rebates for solar installation, independent of state programs. These tend to be first-come, first-served and deplete quickly. Duke Energy offers rebates up to $9,000 for solar plus battery in North Carolina. Xcel Energy provides rebates in Colorado and Minnesota. Austin Energy and CPS Energy offer programs in Texas.

The catch: utility rebates often require using an approved installer or specific equipment. Check with your utility directly before getting quotes, because these rebates can affect which installer you choose.

How to find incentives specific to your address

The most complete database of solar incentives in the US is DSIREUSA.org, maintained by the NC Clean Energy Technology Center. Enter your zip code to see every active program at the state, utility, and local level. It's updated regularly and is the same resource installers use when quoting incentives.

A word of caution: installers have an incentive to emphasize programs that make their quotes look better. Verify any incentive an installer mentions against DSIRE or your state's department of revenue before signing. Programs have eligibility requirements, application windows, and funding caps that installers don't always mention upfront.

Is solar still worth it in 2026 without the federal credit?

Yes, for most homeowners — especially in states with high electricity rates, strong net metering, and active state incentive programs. The federal credit made solar financially attractive in states where it otherwise barely penciled out. Those states with low electricity rates, weak net metering, and minimal sun are now harder cases. But in California, New York, Massachusetts, New Jersey, Arizona, Texas, and Hawaii, the math still works, often well.

The key shift is that incentives now vary much more by location than they did when a flat 30% federal credit applied everywhere. Doing the homework on your specific state, utility, and zip code matters more than it used to. Our free Solar ROI Calculator uses your state's current electricity rate and sun hours to estimate your payback period and 20-year savings, giving you a starting point before you talk to any installer.