Sources: IRS.gov, EnergySage, SEIA, Lawrence Berkeley National Laboratory, EIA, state energy offices
What Actually Happened to the Federal Solar Tax Credit
Start with the facts, because there is a lot of bad information out there right now.
On May 22, 2025, the One Big Beautiful Bill Act (Public Law 119-21) was signed into law. Among other provisions, it terminated the Residential Clean Energy Credit (Section 25D) — commonly known as the 30% solar Investment Tax Credit (ITC) — for any property placed in service after December 31, 2025.
That's a big deal. Since 2006, this credit let homeowners deduct 30% of their solar installation cost from their federal tax bill. On a $20,000 system, that was $6,000 back in your pocket. It drove an enormous wave of residential solar adoption across the country.
Key distinction
If you completed a solar installation before December 31, 2025, you can still claim the 30% credit on your 2025 tax return. The expiration only affects new installations going forward.
What Else Got Cut
The OBBBA didn't just hit solar. It also terminated:
- Section 25C — Energy Efficient Home Improvement Credit (heat pumps, insulation, windows)
- Section 30C — EV Charger Credit (Alternative Fuel Vehicle Refueling Property)
- IRA funding — Unobligated Inflation Reduction Act funds were rescinded, affecting HEEHRA rebate programs in states that hadn't yet committed the money
Source: Congress.gov — H.R.1, IRS.gov
The Real Cost of Solar in 2026 (With Data)
Something most articles skip over: solar equipment costs have come down hard over the past decade. The federal credit is gone, but you are not paying 2015 prices anymore.
According to the Solar Energy Industries Association (SEIA) and EnergySage marketplace data, the average cost per watt for residential solar in the U.S. has dropped from roughly $6.00/W in 2010 to around $2.50–$3.50/W in early 2026 — before any state incentives.
| Year | Avg. Cost/Watt | 7 kW System Cost | Federal ITC | Net Cost After ITC |
|---|---|---|---|---|
| 2015 | $3.50/W | $24,500 | 30% ($7,350) | $17,150 |
| 2020 | $2.96/W | $20,720 | 26% ($5,387) | $15,333 |
| 2024 | $2.79/W | $19,530 | 30% ($5,859) | $13,671 |
| 2026 | ~$2.85/W | ~$19,950 | 0% (expired) | ~$19,950* |
*Before state/local incentives. Sources: SEIA, EnergySage marketplace data, LBNL Tracking the Sun report.
The sticker price is higher without the ITC — there's no sugarcoating that. But look at the trajectory: even without any federal help, the 2026 gross cost ($19,950) is lower than what people paid in 2015 after the credit. Equipment costs did most of the heavy lifting that the ITC used to do.
And that $19,950 is before any state incentives. In states like South Carolina (25% state credit), New York (NY-Sun rebate), or Massachusetts (SMART payments), your actual out-of-pocket can be significantly less.
State Incentives That Pick Up the Slack
With the federal credit gone, state programs carry more weight than they used to. Plenty of states have been building their own incentive programs for years, and some of them are worth real money.
Here is what is available as of March 2026 in states with the strongest programs:
South Carolina
25% state tax credit (up to $3,500)
One of the better state solar credits in the country. You can stack it with net metering.
New York
NY-Sun rebate + state tax credit (25%, $5,000 cap)
The NY-Sun program provides upfront rebates per watt, plus the state offers its own 25% credit.
Massachusetts
SMART program + 15% state credit ($1,000 cap)
SMART pays you per kWh generated over 10 years, so you are literally getting paid for sunshine.
Arizona
$1,000 state tax credit + property tax exemption
Lower dollar incentive, but Phoenix and Tucson get 300+ sunny days a year, so systems produce more per dollar spent.
California
NEM 3.0 + property tax exclusion
Net metering shifted in 2023, but solar paired with storage still works well financially, and the property tax exclusion adds to the value.
Connecticut
RSIP successor programs + property tax exemption
Good net metering policy and a 100% property tax exemption on solar equipment value.
Don't see your state?
These are just highlights. Most states offer some combination of net metering, property tax exemptions, sales tax exemptions, or utility rebates. Browse all 50 states →
Common Types of State Solar Incentives
State tax credits
Like the federal ITC but at the state level. The percentage varies by state, usually 10 to 25%.
SRECs (Solar Renewable Energy Credits)
Tradeable certificates you earn for each MWh your system produces. Worth $20 to $350 or more per credit depending on the state market.
Net metering
Your utility credits you for excess solar energy you send back to the grid. The details vary a lot by utility and state.
Property tax exemptions
Solar systems increase home value, but many states exempt that added value from property taxes so you do not get penalized.
Sales tax exemptions
Some states waive sales tax on solar equipment, saving you 4 to 10% on the purchase.
Utility rebates
Some utilities pay you directly for installing solar, usually a flat dollar amount per watt.
Payback Period Math — Without the ITC
This is what people actually care about, so let us be specific. We will walk through a real example.
Example: 7 kW System in North Carolina
With 25–30 years of panel life remaining after payback, that's roughly $19,000–$27,000 in net lifetime savings (conservative estimate, assuming 3% annual rate increases and 0.5% annual panel degradation).
Now compare that same system in South Carolina, which offers a 25% state tax credit (capped at $3,500):
Same System in South Carolina (With State Credit)
Just one state credit knocked 3+ years off the payback. See all South Carolina incentives →
The takeaway: payback periods got longer without the ITC, but they are not unreasonable, especially in states with their own programs. And electricity rates keep climbing, so payback actually gets shorter with each passing year.
Rising Electricity Rates: The Hidden Factor
Most payback calculators use the same electricity rate every year. That is not how the real world works.
According to the U.S. Energy Information Administration (EIA), average residential electricity rates have climbed substantially over the past several years. The national average residential rate reached roughly $0.168/kWh in late 2024, up from $0.131/kWh in 2020 — a 29% increase in four years.
U.S. Average Residential Electricity Rate Trend
Source: U.S. EIA, Electric Power Monthly. 2026 projection based on EIA Short-Term Energy Outlook.
Here is why this matters for solar: every cent your electricity rate goes up makes your solar savings larger. If rates climb 3 to 5% per year (which is roughly the recent trend), a solar system with a 12 year payback today could end up being an 8 or 9 year payback once you factor in the escalating savings.
Solar is a hedge against future rate hikes. Your cost per kWh from solar gets locked in on day one. Once the system is paid off, it is $0.00 per kWh. The utility rate keeps going up. The gap between the two widens every year.
What Solar Does to Your Home Value
People do not talk about this one enough, and it has nothing to do with the federal tax credit.
A widely cited Lawrence Berkeley National Laboratory study analyzed 22,000+ home sales across eight states and found that homes with solar sold for approximately $15,000 more than comparable non-solar homes. That's a premium of roughly $4/W for a typical system.
A separate Zillow analysis found that solar homes sold for 4.1% more on average nationwide. In certain markets like New York City, San Francisco, and Orlando the premium went above 5%.
The reason is simple: buyers pay more for homes with lower operating costs. Nobody walks through a house asking "Did the seller get a tax credit?" They ask "How much is the electricity bill?"
Quick math
If you install a $20,000 system and your home value increases by $15,000, you've effectively recovered 75% of the cost through equity alone — before a single electricity savings dollar. In states with property tax exemptions for solar, that equity boost is tax-free too.
One thing to know: leased solar systems do not carry the same premium. Owned systems add more value because the buyer gets the asset, not a lease payment obligation.
Who Should — and Shouldn't — Go Solar Right Now
Solar is not a one size fits all decision. Here is where we stand:
Solar probably makes sense if...
- ✓Your electricity bill is $120+/month (higher bills = faster payback)
- ✓You're in a state with strong net metering or state-level incentives
- ✓Your roof has good southern exposure with minimal shading
- ✓You plan to stay in the home for 7+ years
- ✓Your roof is in good condition (less than 10 years old) or you're planning a re-roof
It might not pencil out if...
- ✗Your electricity bill is under $80/month (small offset = long payback)
- ✗You're in a state with weak net metering or low electricity rates
- ✗Heavy tree shading or north-facing roof with no alternative mounting area
- ✗You plan to move within 3–4 years (though the home value premium helps)
- ✗Your roof needs replacement (do the roof first, then solar)
If you're on the fence, the single best thing you can do is run your numbers through our calculator. It pulls real-time state incentive data and utility rate info for your specific ZIP code — so you get a personalized payback estimate instead of national averages.
5 Steps to Take Before Going Solar in 2026
If the numbers look right for your situation, here is the process:
Check your state and local incentives
The federal credit is gone, but your state may still offer real savings. Our state directory covers all 50 states with current program data.
Browse state incentivesRun a personalized savings estimate
National averages will not tell you much. Enter your ZIP code to get cost estimates based on your utility rates, solar irradiance, and local programs.
Use the free calculatorGet 3–5 quotes from local installers
Do not go with the first quote. Solar pricing varies 20 to 30% between installers in the same area. EnergySage is a good place to start comparing.
Evaluate financing options carefully
Solar loans, home equity loans, and cash purchases each have different financial profiles. Without the ITC, cash or HELOC tends to give the best ROI. Be skeptical of zero down solar leases because you give up the home value premium.
Consider pairing solar with battery storage
Battery prices dropped a lot in the last two years, and if your utility has time of use rates or weak net metering, a battery can change the economics. It stores cheap daytime solar for the expensive evening hours.
The Bottom Line
Losing the 30% federal tax credit hurts. There is no way to spin that into something positive.
But anyone saying solar is "dead" without the ITC is ignoring a decade of cost reductions that brought panel prices down over 60%. They are ignoring state incentive programs that shave thousands off the price in a lot of states. They are ignoring electricity rates that climbed 29% in four years with no sign of slowing. And they are ignoring the roughly $15,000 premium that buyers pay for solar homes.
If you have decent sun exposure, electricity bills above $120 a month, and a roof in reasonable shape, solar still works in 2026. The margins are tighter than 2024, sure. But the math is still positive. And every month you wait, you are paying a utility bill that could be going toward a system that eventually pays for itself.
Ready to see your numbers?
Enter your ZIP code to get a personalized solar cost estimate with current state incentives, utility rates, and payback timeline — free, no sign-up required.
Calculate My Solar SavingsFrequently Asked Questions
Are solar panels worth it in 2026 without the federal tax credit?
In most cases, yes. Solar panel costs dropped roughly 60% over the past decade, so average residential systems now run $2.50 to $3.50 per watt before state incentives. In states with net metering and state credits, payback periods fall between 6 and 10 years on a system that lasts 25 to 30 years.
What replaced the federal solar tax credit?
Nothing replaced it at the federal level. The 30% Residential Clean Energy Credit (Section 25D) was terminated for installations after December 31, 2025, by the One Big Beautiful Bill Act (Public Law 119-21). That said, many states have their own solar tax credits, rebates, SRECs, and net metering policies that lower costs by thousands of dollars.
How much do solar panels cost in 2026?
The national average for a residential solar system in 2026 is approximately $2.50–$3.50 per watt, or roughly $15,000–$25,200 for a typical 6–7.2 kW system before state incentives. Costs vary significantly by state, installer, and equipment choice. Use our calculator to get a personalized estimate for your ZIP code.
Which states have the best solar incentives in 2026?
The strongest state programs right now are in South Carolina (25% state tax credit), New York (NY-Sun rebate plus a state tax credit), Massachusetts (SMART program with ongoing per-kWh payments), California (NEM 3.0 and property tax exclusion), and Arizona ($1,000 state credit plus 300 sunny days a year). Most states also exempt solar equipment from property tax or sales tax or both.
What is the payback period for solar panels without the ITC?
Without the federal ITC, the average payback period is 7–12 years depending on your state, electricity rates, system size, and available state incentives. In high-electricity-cost states like California, Massachusetts, and Connecticut, payback can be as fast as 5–7 years. The system itself typically lasts 25–30 years.
Should I wait for the federal tax credit to come back?
No one in Congress has introduced a bill to bring it back, and the One Big Beautiful Bill Act explicitly repealed it. Meanwhile, electricity rates are up 29% nationally since 2020 and some state incentive funds are being drawn down. Every month you wait, you pay the full utility rate and risk missing state programs before their budgets run out.
Do solar panels increase home value without the tax credit?
Yes. A Lawrence Berkeley National Laboratory study of 22,000 home sales found buyers paid about $15,000 more for homes with solar. Zillow's data shows a 4.1% average premium. Buyers are not thinking about the seller's tax credit. They are looking at the electricity bill, and a solar home has a lower one.
Sources & References
- •IRS — Residential Clean Energy Credit
- •Congress.gov — One Big Beautiful Bill Act (H.R.1)
- •SEIA — Solar Industry Research Data (Solar Market Insight)
- •EnergySage — Solar Panel Cost Data
- •LBNL — Selling Into the Sun (Home Value Premium Study)
- •U.S. EIA — Electric Power Monthly (Residential Rates)
- •Zillow — Solar Home Value Premium Analysis
Marcus Reilly
Senior Energy Policy Analyst • M.A. Public Policy, Georgetown University
Marcus worked for seven years as a policy analyst at a state energy office, mostly digging through utility rate filings and incentive program data. He joined Net-Zero USA in 2024 to write about residential solar economics now that the federal credit is gone. He has a Master's in Public Policy from Georgetown and has been quoted in Utility Dive and Greentech Media.