Solar After the Federal Tax Credit: What Incentives Remain (2026)

What Was the Federal ITC?

From 2006 through December 31, 2025, homeowners installing solar energy systems could claim a federal income tax credit equal to 30% of the total installed cost. For a typical $18,000 system, this represented a $5,400 tax credit, significantly improving the economics of residential solar adoption.

The ITC originated in the Energy Policy Act of 2005 and was extended several times, most recently by the Inflation Reduction Act of 2022, which set a 30% rate. The One Big Beautiful Bill Act of 2025 subsequently terminated the residential clean-energy credit (§25D) for systems placed in service after December 31, 2025, so the 30% residential credit is no longer available for new installations. Confirm current federal rules with the IRS.

What Replaces the ITC in 2026?

While losing the federal ITC adds approximately $4,000–$6,000 to the effective cost of a typical residential system, many states have responded with enhanced programs. Here's what's available:

1. State Solar Tax Credits

Several states offer their own income tax credits for solar installations:

• South Carolina - 25% tax credit, up to $3,500 per year (can spread across multiple years)
• New Mexico - 10% tax credit, up to $9,000 total
• Arizona - 25% tax credit, up to $1,000
• Iowa - 50% of federal credit amount (note: this tracks the federal credit, which expired)
• Utah - 25% tax credit, up to $800
• Montana - Up to $500 tax credit

2. SREC Markets

Solar Renewable Energy Certificates (SRECs) provide ongoing passive income from your solar production. States with strong Renewable Portfolio Standards maintain active SREC markets:

• New Jersey - SREC-II/TREC program at $90–$152/SREC (2026 pricing)
• Illinois - Shines program at $65–$75/REC for 15-year contracts
• District of Columbia - $400+ per SREC due to aggressive RPS
• Massachusetts - SMART program at $0.05–$0.30/kWh for 10 years
• Pennsylvania, Maryland - Active SREC markets at market rates

3. Utility Rebate Programs

Utility-level rebate programs have become more important in the post-ITC environment:

• Xcel Energy (CO/MN) - Solar*Rewards performance incentive at $0.035/kWh + upfront rebate
• NY-Sun (NYSERDA) - $0.20–$0.50/W upfront for residential installations
• Oregon Solar + Storage - Up to $2,500 for solar + $2,500 for battery storage
• California SGIP - $0.25–$0.85/Wh for battery storage (important for NEM 3.0 value)

4. Property and Sales Tax Exemptions

Tax exemptions reduce the effective cost without requiring income tax liability. Most states offer at least one of these:

• Property tax exemptions - Available in 35+ states, exempting solar equipment from added property value
• Sales tax exemptions - Available in 25+ states, reducing equipment purchase costs by 5–10%

States Where Solar Still Makes Strong Financial Sense

Without the federal ITC, the economics of solar vary significantly by state. States where solar remains financially attractive in 2026:

• New Jersey - High SREC value + full net metering + property tax exemption
• Massachusetts - SMART program + high electricity rates + full net metering
• Hawaii - Very high electricity rates (38¢/kWh) make solar compelling despite export rate changes
• Arizona/New Mexico - Excellent solar irradiance + state tax credits + net metering
• Illinois - Shines SREC program provides significant long-term revenue
• New York - NY-Sun upfront incentive + 15-year property tax exemption + high rates

Is Solar Still Worth It Without the ITC?

For many homeowners, yes, especially in states with high electricity rates, strong solar irradiance, or active SREC markets. The decision depends on:

• Your state's electricity rate (higher = better solar economics)
• Available state/utility incentives
• Your roof's solar potential (orientation, shading)
• Whether your state has favorable net metering
• The value of energy independence and rate protection

Use our Solar ROI Calculator to estimate your specific payback period without the federal ITC, or browse your state's incentive page for available programs.