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The Federal Solar Tax Credit: What Homeowners Need to Know for 2026
The federal Investment Tax Credit (ITC), also known as the federal solar tax credit, was for many years one of the most valuable solar incentives for homeowners, worth 30% of a system’s cost. Important update: the residential version of this credit (Section 25D) was eliminated by the One Big Beautiful Bill Act, signed July 4, 2025, and expired on December 31, 2025. Homeowners who buy a system with cash or a loan in 2026 no longer receive a federal tax credit. This page explains how the credit worked, who may still be able to claim it, and the Massachusetts incentives that still make solar worthwhile.
How Did the Federal Solar Tax Credit Work?
While it was in effect, the solar tax credit allowed you to claim a dollar-for-dollar reduction on your federal income tax equal to 30% of your total residential solar installation costs, with no maximum. For example, a $30,000 system produced a $9,000 credit.
To claim it, your system had to be installed and placed in service before the credit expired on December 31, 2025. If you installed and turned on your system on or before that date, you may still be able to claim the credit on that year’s tax return and carry forward any unused amount. If you are installing in 2026, no federal residential credit is available. Always confirm your situation with a tax professional.
What Expenses Did the Solar Tax Credit Cover?
While it was available, the solar tax credit covered almost all of the expenses related to a solar installation, including:
- Solar PV panels
- Solar inverters
- Wiring and racking/mounting equipment
- Solar batteries (with a capacity rating of 3 kWh or higher)
- Installation costs
- Permitting costs
Roof replacement costs were not included in the credit.
Who Was Eligible for the Residential Solar Tax Credit?
Most homeowners were eligible for the solar tax credit while it was in effect. To qualify, you had to meet the following criteria:
- You own your solar photovoltaic (PV) system
- Your PV system is installed at a home or property that you own in the United States
- You have taxable income
- Your solar panel system is new and being used for the first time
How the Law Changed: From the Inflation Reduction Act to the 2026 Repeal
The Inflation Reduction Act of 2022 temporarily strengthened the federal solar tax credit. Before it was signed into law in August 2022, the residential credit was worth 26% and scheduled to step down. The Inflation Reduction Act raised it back to 30% and extended it through 2032. However, the One Big Beautiful Bill Act, signed July 4, 2025, repealed the residential credit (Section 25D) early, ending it for systems placed in service after December 31, 2025.
The good news: Massachusetts homeowners still have a strong incentive stack, including the state income tax credit (up to $1,000), the SMART production program, full retail net metering, and property and sales tax exemptions. Third-party owned systems (solar leases and PPAs) may also still benefit from the separate commercial credit under Section 48E.
Ready to see your 2026 numbers? Call 617-505-4494 or contact us to schedule a free solar consultation in Massachusetts.
*The contents of this page are for informational purposes only and should not be relied upon for tax or accounting advice. Always consult a tax professional before making financial decisions about your solar installation.
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