The Residential Clean Energy Credit — commonly called the federal solar tax credit, Section 25D of the Internal Revenue Code — expired for residential systems placed in service after December 31, 2025. The 30% rate that had been the headline of every solar quote for the last several years no longer applies to new homeowner installations. This is the single biggest change in residential solar economics in a decade, and most calculators on the web have not yet caught up.
What 25D actually was
Section 25D was a non-refundable personal income tax credit equal to 30% of the eligible cost of a residential solar electric system, solar water heating system, fuel cell, small wind, geothermal heat pump, or battery storage system (post-2022 amendments) installed at the taxpayer's home. It was claimed on Form 5695, applied directly against income tax owed, and could be carried forward to the following tax year if the homeowner did not have enough liability to use it all in year one.
For a typical $22,000 residential install, 25D returned $6,600 to the homeowner the spring after the system was placed in service. That number anchored almost every payback narrative the residential solar industry told between 2022 and 2025.
What "expired" means in practice
The credit phased out under the schedule established by the One Big Beautiful Bill Act and prior Inflation Reduction Act amendments. The relevant cutoff is the system's placed-in-service date — not the contract date and not the deposit date. A homeowner who signed a contract in October 2025 but had their system commissioned and granted permission to operate by the utility in January 2026 cannot claim the credit. The IRS guidance on this is unambiguous.
Note that the Section 48E commercial Investment Tax Credit, which applies to business-owned systems including third-party-owned residential leases and PPAs, runs on a different schedule and is not addressed here. The discussion below assumes a homeowner buying and owning a residential system.
What this means for payback math
The most direct effect is that the net cost of a residential system in 2026 is roughly 43% higher than it was on December 31, 2025, for the same hardware and labor. A $22,000 gross installation that used to net to $15,400 after the federal credit now nets to $22,000. The payback period stretches accordingly.
For a 7 kW system in a state with average sun and 16¢/kWh electricity, the year-one bill savings are around $1,400. Pre-2026, payback was roughly 11 years on the post-credit net cost. In 2026, with no federal credit, that same system is closer to 16 years before cumulative savings catch up to upfront cost — assuming today's electricity rate trajectory continues.
What is still on the table
Several incentives survive the federal sunset and now carry the load:
- State income tax credits. States including New York (25% up to $5,000), Massachusetts (15% up to $1,000), South Carolina (25% up to $3,500/yr), Hawaii (35%), and New Mexico (10% up to $6,000) still offer their own credits, capped lower than the old federal credit but meaningful.
- State or utility upfront rebates. Maryland's residential rebate ($1,000 flat), Oregon's Solar+Storage rebate, NY-Sun's Megawatt Block ($/W), and various utility-administered rebates still pay cash up front.
- Sales tax exemptions and property tax exclusions. Many states exempt solar equipment from sales tax (Arizona, Florida, Massachusetts, New Jersey, New York, others) and exclude its added value from property tax reassessment. These are smaller in magnitude but compound over the system lifetime.
- SREC markets. Solar Renewable Energy Certificate markets in DC, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania, and others continue to pay homeowners per MWh of production. Prices vary widely — DC SRECs trade above $400, while PA SRECs have dropped under $40 — and contract terms matter.
- Net metering or net billing. The compensation rate for energy sent back to the grid remains the largest year-over-year economic variable for most homeowners. States that still mandate full retail net metering (and there are fewer every year) make solar pay back materially faster than states that have moved to net billing or avoided-cost compensation.
How to think about a 2026 purchase
The honest framing is that residential solar in 2026 is back to being a long-horizon investment, similar to its economic profile in the early 2010s before the original ITC was sweetened. Payback in the 12-to-18 year range is now common across most of the country, with the high-rate, sunny markets (Hawaii, parts of California and Massachusetts, New York) on the shorter end and the low-rate, weaker-incentive states (much of the Southeast outside of utility-specific programs) on the longer end.
This calculator does not apply the 30% federal credit by default. If you are doing your own math elsewhere, you should remove it too — keeping it in is the single most common error you will find in installer quotes and online calculators in 2026.