Updated 2026-10-04
Section 25D, the credit that reduced the price of a residential solar system by 30%, ended on 31 December 2025. It had been legislated to run until 2032. Much of the published guidance has not been revised, with the result that payback figures in circulation are commonly several years too optimistic.
Section 25D allowed a homeowner purchasing a solar system to claim 30% of the total cost against federal income tax. On a $17,100 system that amounted to approximately $5,130. The Inflation Reduction Act had set the rate at 30% through 2032, falling to 26% in 2033 and 22% in 2034.
The One Big Beautiful Bill Act, signed in July 2025, cut that short. Residential systems placed in service from 1 January 2026 get nothing. There was no phase-down and no grace period — the credit went from 30% to zero overnight.
Approximately $5,130 more in up-front capital on a typical system. In payback terms that adds three to five years, depending on the rate at which the system was already returning value. A state representing an eight-year proposition in 2025 now represents a twelve-year one.
The effect is smallest in states where electricity is expensive enough to carry the cost regardless. On the figures published here the shortest remaining paybacks are Hawaii (4.5 yrs), New York (6.2 yrs), Illinois (6.5 yrs), Massachusetts (6.8 yrs), Maine (7.0 yrs), New Jersey (7.0 yrs).
Revision is laborious and the earlier figures are more attractive. Pages carrying a 2026 review date still describe the credit as running through 2032. A calculator returning a payback under six years in a state with average electricity prices is almost certainly still deducting 30% that no longer applies. Any payback period quoted by an installer should be accompanied, in writing, by the credit assumed in reaching it.
State programs. Rebates, state tax credits and SREC markets are unaffected, and now account for the whole of the available support rather than supplementing a federal credit. What each state offers.
The commercial credit. Section 48E continues to apply to systems owned by a business. This is why leases and power purchase agreements have grown quickly since the residential credit ended: the installer owns the system, claims the commercial credit and passes part of it through as a lower monthly payment. Ownership does not transfer, and payback ceases to be the relevant measure; the comparison becomes one monthly bill against another.
Net metering. Unchanged, and now the single largest variable determining whether solar is viable in a given state.
In high-rate states the arithmetic remains clearly favorable. In low-rate states with weak export compensation, solar is now difficult to justify as an investment, though it remains a reasonable choice where backup power or emissions reduction is the objective.
State-level figures are more informative than a national average. Payback periods by state.
Not for homeowners purchasing their own system. The 30% residential credit under Section 25D expired on 31 December 2025 and has not been replaced. A separate commercial credit still exists, which is why leases and power purchase agreements can still pass part of it through.
Yes. It was legislated to run at 30% until 2032, then step down. The One Big Beautiful Bill Act, signed in July 2025, ended the residential credit at the end of 2025 instead — with no step-down and no transition period.
A system placed in service on or before 31 December 2025 qualifies for the 30% credit on that year's return. Placed in service means installed and operational, not ordered or paid for.
No replacement has been enacted. Industry groups have lobbied for one, but no bill carries a timetable. The prudent assumption is zero.
Privacy. This is not tax advice. Outcomes depend on individual liability and circumstances; a tax professional should be consulted before relying on any credit.