Federal & State Solar Tax Credits: Simple 2026 Guide

ByCrazy Old Prepper

Last updated: January 2026 (rules change fast—bookmark this)

Big 2026 headline: the federal residential solar/battery credit (IRC §25D, claimed on Form 5695) was repealed for “expenditures made after December 31, 2025.” In plain English: if your solar or battery installation is completed in 2026, you generally don’t get the federal residential credit.
(You can still claim and carry forward unused credit for qualifying installs completed by 12/31/2025.)

State + utility incentives didn’t disappear—so in 2026 they matter more than ever.

TL;DR Snapshot (Skimmers, start here)

  • Homeowners (federal): The Residential Clean Energy Credit (§25D) is not available for expenditures made after Dec 31, 2025. If your install was completed by 12/31/2025, the credit rate was 30% and you claim it on IRS Form 5695.
  • Timing gotcha: Under §25D, an “expenditure” is treated as made when the original installation is completed—so a project started in 2025 but finished in 2026 generally won’t qualify.
  • Carryforward: If you qualified (installation completed by 12/31/2025) but didn’t use the full credit, you can carry it forward into future years (Form 5695 even has a “carryforward to 2026” line).
  • Businesses / landlords (federal): For projects placed in service after Dec. 31, 2024, the Clean Electricity Investment Credit (§48E) may apply (base 6%, increased up to 30% with prevailing wage/apprenticeship; plus possible adders). Claimed on Form 3468.
  • Batteries: Under the old residential rules, battery storage needed ≥ 3 kWh and was eligible (for qualifying installs through 2025).
  • Stacking incentives: Rebates and subsidies can affect what “costs count” for credits (and programs can have their own rules).
  • Best 2026 strategy for most homeowners: Focus on state + utility incentives and verify everything on DSIRE (state-by-state database).

Why this matters (my real-world take)

When I installed my first PV system, incentives were the difference between “maybe someday” and “let’s do this.” The tricky part wasn’t the gear—it was the paperwork and the timing.

In 2026, the game changed: the federal residential credit is gone for new installs, so your best savings now come from state, utility, and local programs (plus smart system design and financing).

1) Quick Definitions (No Jargon)

  • §25D (Residential Clean Energy Credit): The old federal homeowner credit you claimed on Form 5695—repealed for expenditures made after 12/31/2025.
  • §48E (Clean Electricity Investment Credit): The current federal business/nonprofit investment credit for qualifying projects placed in service after 12/31/2024 (tech-neutral).
  • “Expenditures made” / “installation completed”: For §25D, the key timing concept is when original installation is completed.
  • Placed in service: Generally means installed and ready to operate (often aligned with inspection/interconnection approval in practice).
  • Rebate vs. tax credit: A rebate is cash back; a tax credit reduces tax you owe.

2) Federal Solar Incentives in 2026: What’s Still Available?

2.1 Homeowners (Primary/Second Homes)

For new 2026 installs: The federal residential credit does not apply if installation completes in 2026.

For installs completed by 12/31/2025:

  • Credit rate was 30% (for 2022–2025).
  • Claimed on Form 5695.

2.2 Businesses / Landlords / Some Third-Party Ownership (Still a Thing)

For projects placed in service after 12/31/2024, §48E may apply:

  • Base credit 6%, increased up to 30% for facilities meeting prevailing wage + apprenticeship rules, plus potential adders.
  • Claimed on Form 3468.
  • Direct pay or transfer may be available (and requires pre-filing registration).

Why you care as a homeowner: With a lease/PPA, the company owning the system may still qualify under business rules—and that can affect pricing. (You don’t claim the credit; they do.)

3) What Costs Count (If You’re Claiming a Credit for a 2025-Completed Install)

If your installation was completed by 12/31/2025 and you’re filing for it:

3.1 Typical Eligible Costs (Residential §25D rules through 2025)

  • Solar equipment that generates electricity for your home, plus labor allocable to onsite prep/assembly/original installation and required wiring.
  • Solar roofing tiles/shingles that function as both roof + solar collector can qualify; decking/rafters and purely structural roof components do not.
  • Battery storage had to be installed in connection with the home and be ≥ 3 kWh.

3.2 Rebates/Subsidies: The “Basis” Gotcha

For Form 5695 credit calculations, IRS instructions say you must subtract certain subsidies/rebates from qualified costs (examples include public utility rebates).

Skim-Stopper rule of thumb: If a program directly reduces what you paid, assume it can reduce what counts—until you confirm.

4) Timing Rules (This Is Where People Get Burned)

4.1 The 2026 Timing Trap

Because §25D is repealed for expenditures made after 12/31/2025, and because “expenditures made” generally means installation completed, a project that finishes in 2026 typically doesn’t qualify—even if you paid deposits in 2025.

4.2 What to Save

  • Final inspection sign-off / PTO letter
  • Itemized invoices + proof of payment
  • Permits + interconnection documents
  • Photos (labels/serials help)

5) How to Claim (If You’re Eligible)

5.1 Homeowners (Eligible 2025-Completed Installs)

  • Form 5695 → flows to Schedule 3 (Form 1040).
  • Form 5695 includes a line for carryforward to 2026 if your credit exceeds your tax liability.

5.2 Businesses / Landlords (2025+ Projects)

  • Form 3468 for §48E.
  • Basis reduction: Instructions for Form 3468 state you generally reduce the basis of energy property by 50% of the energy credit.

6) State + Utility Incentives (Your Main Savings Lever in 2026)

Since the federal homeowner credit is gone for new installs, your best play is to stack state + utility + local incentives.

6.1 The Fastest Way to Find What You Qualify For

Use DSIRE (Database of State Incentives for Renewables & Efficiency). It’s a long-running, state-by-state incentives database run by the NC Clean Energy Technology Center.

My workflow:

  1. Search DSIRE by ZIP/state
  2. Write down every program: rebates, tax credits, sales/property tax exemptions, battery incentives, net metering, grants
  3. Go to your utility’s site and confirm budgets, deadlines, waitlists, and required paperwork
  4. Apply early (many programs are “first come, first funded”)

6.2 Stacking Rules (Practical)

  • Usually you can combine programs, but each program may require you to apply in a certain order.
  • Keep a single spreadsheet with: program name, deadline, required docs, approval date, amount.

7) Batteries in 2026 (What to Know)

  • Residential federal battery credit: only relevant now if your battery installation was completed by 12/31/2025 (and met the ≥3 kWh rule).
  • State/utility battery programs: still common (especially for backup resiliency). Treat these like mini-grants with strict paperwork.

8) Common Pitfalls (2026 Edition)

  1. Installer says “30% federal credit” for a 2026 install → double-check. The IRS Form 5695 instructions say no residential clean energy credit for expenditures after 12/31/2025.
  2. Project crosses New Year: started in 2025, completed in 2026 → likely not eligible for §25D.
  3. Roof confusion: solar shingles may qualify; decking/rafters don’t.
  4. Missing paperwork: no itemized invoice, no final inspection/PTO, no proof of payment → headache later
  5. Not checking DSIRE + utility fine print: budgets, caps, waitlists, and pre-approvals are where savings go to die

9) Example Walkthroughs (Numbers You Can Copy)

A) Homeowner who completed install in 2025

  • Solar project cost: $22,000
  • Eligible credit rate (2022–2025 installs): 30%
  • Credit computed on Form 5695; unused amount can carry forward to 2026.

B) Business rooftop PV (placed in service after 12/31/2024)

  • Possible §48E credit: base 6%, can increase up to 30% + adders; filed on Form 3468.
  • Basis reduction rule applies.

C) 2026 homeowner install

  • Federal homeowner credit: generally not available
  • Your savings plan: state + utility rebates, tax credits, battery programs, net metering (start with DSIRE).

10) Your “Audit-Ready” Folder (Do This Once)

Use a simple naming pattern:
Solar_2025_Project/Invoices/
Solar_2025_Project/Permits_PTO/
Solar_2025_Project/Specs_Serials_Photos/

Keep it for years.

11) Pick Your Path (Internal Links)

  • New to solar? Read: Understanding Solar Power: A Beginner’s Guide to Self-Sufficient Living
  • Costs: How Much Do Solar Panels Cost in 2025
  • ROI: Are Solar Panels Worth It? ROI & Payback Period
  • Hardware: Solar Panel System Components Explained
  • Placement: Optimal Angle & Placement for Solar Panels
  • Maintenance: Solar Panel Cleaning Guide

Practical Takeaways

  • If you completed installation by 12/31/2025: claim what you’re owed, and don’t forget carryforward if needed.
  • If you’re installing in 2026 as a homeowner: treat state + utility incentives as the main event (DSIRE first).
  • If it’s business/rental/third-party owned: model §48E carefully (labor rules, adders, Form 3468, basis reduction).

Friendly reminder: I’m not your CPA. Incentives are worth real money, and the details matter—so if you’re close to a deadline or have mixed-use/rental/business complexity, it’s worth a quick consult with a qualified tax pro.

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