Solar Tax Credit 2026: What 25D's Death Means for Your Solar Decision

If you have read any solar installer's website in 2026, you have probably seen the phrase "take advantage of the federal solar tax credit." Most are still using 2024 marketing copy. The credit they are referring to — Section 25D, the 30% residential ITC — was terminated for expenditures made after December 31, 2025. There is no replacement for any homeowner-owned system, however you pay for it. None.

What 25D was, and what happened to it

Section 25D of the Internal Revenue Code provided a 30% nonrefundable tax credit against the cost of a qualified residential solar electric system. It was terminated "with respect to any expenditures made after December 31, 2025" — 26 U.S.C. 25D(h), as amended by P.L. 119-21 §70506(a). Note what the statute says: expenditures made, not "placed in service" as the IRS consumer page puts it. An expenditure is treated as made when the original installation is completed (§25D(e)(8)(A); IRS FS-2025-05 FAQ 7), so paying in 2025 for a system finished in 2026 does not preserve it. For anything completed in 2026 or later, 25D is zero. No phase-down. No transition.

One exception matters if you already installed: if your system was completed in 2025 and the credit exceeded your tax liability that year, the unused §25D credit still carries forward (§25D(c), which was not amended). "The credit no longer exists" is not true for you — ask your CPA before you write it off.

The One Big Beautiful Bill (P.L. 119-21), signed in 2025, did not merely decline to extend 25D — §70506(a) amended 25D(h) to terminate the credit outright for expenditures made after December 31, 2025. This was widely under-reported in solar trade press through Q4 2025.

48E: the provider's credit, not yours

The 48E investment tax credit is claimed by the OWNER of the system. In a TPO/PPA the owner is the installer or financing partner — never you. For a facility with a maximum net output of less than 1 megawatt AC, the rate is 30% with no prevailing-wage or apprenticeship compliance (26 U.S.C. 48E(a)(2)(A)(ii)(I); the "One Megawatt Exception" at 26 CFR 1.48E-3(b)(1)). Less than 1 MW — exactly 1.000 MW AC fails. Without that exception, the base rate is 6% unless the owner meets the prevailing-wage and apprenticeship requirements.

And nobody should be telling you the provider definitely qualifies on a residential roof — that is unresolved. §50(b)(2) denies the investment credit for property "used predominantly to furnish lodging," with a carve-out at 50(b)(2)(D) for "any energy property," and the final 48E regulations never address lodging or 50(b)(2) at all. Provider eligibility is the provider's problem, not a fact we assert for them.

What is certain is what reaches you: nothing on your tax return. You claim no federal credit on a lease or PPA. Any value the provider passes along shows up only in your monthly payment — and that payment is a price the provider sets. Whether it stays a saving across the term depends on the escalator.

Three conditions ride on the owner's 48E claim:

1. Timing. A project beginning construction now has to be placed in service by December 31, 2027 (§48E(e)(4)(A); P.L. 119-21 §70513(g)(5), applied to construction beginning after July 4, 2026 per IRS Notice 2025-42).
2. Sourcing. For construction beginning after December 31, 2025, 40% of manufactured-product cost must be free of "material assistance from a prohibited foreign entity" (§48E(b)(6); the 40% figure for 2026 comes from §7701(a)(52)(B)(i)(I)). Failing it makes the credit zero, not smaller.
3. Usability. 48E is a nonrefundable general business credit: capped by the §38(c) tax-liability limit, 1-year carryback and 20-year carryforward (§39(a)(1)), suspended where the owner's role is passive, and subject to 5-year recapture (§50(a)(1)(B)). No direct pay for an ordinary business (§6417(c)(1)(A)).

Miss one and the owner's credit does not materialize. The PPA rate an installer quoted assuming 48E will not pencil if they cannot actually claim it. Always ask for a written 48E compliance attestation before signing a TPO/PPA in 2026 — and remember it is their credit and their math, not a number that lands on your return.

State-level credits and incentives still alive

Federal is the big number, but several states still pay meaningful incentives in 2026:

• New York: 25% personal income tax credit, capped at $5,000
• Massachusetts: SMART program ($5–10k production-based, 10 years)
• New Jersey: SuSI program ($85–90/MWh for 15 years)
• Illinois: ABP / SRECs ($4–8k upfront present-value lump)
• California: Self-Generation Incentive Program (SGIP) for battery storage; no current incentive for solar-only
• Texas: Some municipal utility rebates (Austin Energy, CPS); no state-level
• Florida: Sales-tax exemption + property-tax exclusion (no direct credit)

What this means for your 2026 decision

If you will own the system — cash, loan, or any other structure where the panels are yours: you get zero federal credit. No purchase structure survives 25D's termination. Run your payback math without it. If it still works, fine. If it does not, price a TPO/PPA — but price it as a monthly payment with an escalator, not as a credit you are recovering.

If you are considering TPO/PPA: verify 48E in writing. Construction-start date, a placed-in-service date inside the 2027 wall, and a foreign-sourcing attestation are non-negotiable. Without them, your "lower lease rate" is built on a federal credit the installer may not be able to claim — and either way that credit is theirs, not yours.

Honest broker take: Most installer websites in 2026 are running stale marketing copy that implies 25D is still alive. It is not. Get a contract reviewed by someone independent before signing. reviewingsolar.com does this for free.