Federal Solar Tax Credit: What It Was and What Replaced It

The 30% federal solar tax credit was a major incentive for homeowners — until OBBB terminated it in December 2025. Here's what it was, how it worked, and what replaced it.

⚠️ CRITICAL 2026 UPDATE — READ FIRST

This article was originally published April 14, 2023 and explained the 30% Federal Solar Tax Credit (Section 25D) as it existed at the time. The One Big Beautiful Bill Act terminated the credit for expenditures made after December 31, 2025. No homeowner who owns their own system qualifies for a federal residential solar tax credit in 2026 — cash, loan, or any other structure. (If your installation was completed in 2025 and the credit exceeded your tax liability, the unused amount still carries forward; ask your CPA.)

If you came here looking for current information about federal solar incentives, you need this instead:

→ The 30% Federal Solar Tax Credit Is Gone — What Replaced It in 2026

The article below is preserved for historical reference. Do not make purchasing decisions based on it.

— Eric Brickus, Solarfying

Solar energy is a sustainable and environmentally friendly source of power that has become increasingly popular among homeowners. One of the most significant historical incentives for installing solar panels was the Federal Solar Tax Credit, also known as the Investment Tax Credit (ITC).

This article explores how the Federal Solar Tax Credit worked and why it was a smart investment for homes — at the time of writing.

What Was the Federal Solar Tax Credit?

The Federal Solar Tax Credit was a federal incentive that allowed homeowners to deduct a percentage of the cost of installing solar panels from their federal taxes. The credit was initially introduced in 2006 to encourage solar adoption and was extended several times. As of this article's original publication in 2023, the credit was set at 30% of the total cost of the solar panel system for residential properties.

Status in 2026: Terminated. The OBBB Act ended Section 25D for expenditures made after December 31, 2025 — and an expenditure counts as made when the original installation is completed, so paying in 2025 for a system finished in 2026 does not preserve it. There is no federal residential solar tax credit available on any homeowner-owned system in 2026 or beyond.

How the Federal Solar Tax Credit Worked

The Federal Solar Tax Credit allowed homeowners to deduct 30% of the cost of their solar panel system from their federal taxes. To qualify, homeowners had to own their solar panel system and have it installed on their primary residence. The credit applied to the cost of the system, including installation and equipment costs, but did not cover repairs or maintenance.

For a $30,000 system, the credit was worth $9,000 — applied as a dollar-for-dollar reduction in federal taxes owed.

Why It Was a Smart Investment (Until It Wasn't)

While the credit was active, it was a smart financial play for homeowners with sufficient federal tax liability:

  • It significantly reduced effective installation cost
  • Combined with bill savings, payback periods were typically 5–7 years
  • It supported home value increases (homes with solar consistently sold for more)
  • It contributed to a more sustainable energy future

What Replaced It

In 2026 the only federal credit still in play on a home is Section 48E, and in a third-party-owned deal (lease or PPA) it belongs to the company, not to you — nothing goes on your tax return. The provider owns the panels and is the taxpayer, and whether it actually qualifies on a residential roof is an unsettled question it has to answer for itself. Anything it chooses to pass along reaches you only as the monthly payment: a price the provider sets, with an escalator over the term that decides whether it stays a saving. If you own the system, there is no federal credit for you, whatever you paid with.

State incentives still matter. California's SGIP for storage, Florida's sales/property tax exemptions, New Jersey's SuSI program, and others remain meaningful — and in some cases offset much of what the federal credit used to provide.

Read the full update on what's available in 2026.

Conclusion

The Federal Solar Tax Credit was, for nearly two decades, the single biggest financial incentive for residential solar in the United States. It made the math work for hundreds of thousands of homeowners.

It's gone now for every system a homeowner owns, however it was paid for. The financing landscape has shifted toward lease and PPA structures, where any 48E credit belongs to the company that owns the panels — it is never yours, and it reaches you at all only as the monthly price you're quoted. Anyone considering solar in 2026 should make decisions based on current law — not articles like this one written under the old framework.

Need a current, OBBB-accurate solar analysis?

Eric Brickus, Solarfying