How the Federal Solar Tax Credit Works: A Plain-English Guide
The 30% federal residential solar credit has ended. Under P.L. 119-21, the §25D Residential Clean Energy Credit terminated for expenditures made after Dec 31, 2025 — a system installed in 2026 cannot claim it. This page explains what the credit was, and why the old Form 5695 walkthrough no longer applies to a new install.
What 'Tax Credit' Actually Means
A tax credit is not a deduction. A deduction reduces taxable income; a credit reduces tax dollar-for-dollar. That distinction described the old residential credit. It does not create a credit for a system installed in 2026.
Unused credit from a qualifying expenditure made on or before December 31, 2025 can still be carried forward. CRS IN12611 notes that P.L. 119-21 did not change the carryforward rule. Carryforward is not a credit for a new 2026 installation.
Who Qualifies
For expenditures made after December 31, 2025, a homeowner does not qualify. The IRS treats the expenditure as made when original installation is completed, so paying in 2025 and finishing installation in 2026 does not preserve the credit.
The old rules — no income cap, owned systems, primary or secondary residences — described the credit before it terminated. They are not a 2026 eligibility list.
Form 5695 does not create a 2026 credit
Form 5695 was the form used to claim the Residential Clean Energy Credit for a year when a qualifying expenditure was made. A system installed in 2026 is not that expenditure. Do not multiply a 2026 install by 30% and put it on Form 5695.
If you made a qualifying expenditure on or before December 31, 2025 and still have unused credit, the carryforward question is separate. This is general information, reviewed Oct 2026, not tax advice.
What Counts as a 'Qualified' Cost
Solar PV panels, inverters, mounting hardware, monitoring equipment, batteries with capacity ≥3 kWh, wiring, electrical work, sales tax on equipment, permitting and inspection fees, labor for installation, and roof reinforcement specifically engineered to support the panel array.
Those historical eligibility lines do not matter for a 2026 residential install, because the credit does not apply. Do not compute 30% of a 2026 system cost.
The old phase-down is gone
P.L. 119-21 replaced the old termination date. Section 25D(h) now says the credit does not apply to expenditures made after December 31, 2025. The old step-down years were removed from the statute. A homeowner installing in 2026 does not lock in a 30% rate.
The honest 2026 question is whether solar still pays in your state with $0 federal credit plus that state's incentives. Use the calculator. It defaults the federal residential credit to $0.