For more than a decade, the single biggest driver of residential solar economics in the United States was a three-letter acronym: ITC. The 30% federal Investment Tax Credit — technically Section 25D of the Internal Revenue Code — put thousands of dollars back in homeowners’ pockets and turbocharged solar adoption. Then, on July 4, 2025, the One Big Beautiful Bill was signed into law. It killed Section 25D for any system installed after December 31, 2025. No phase-down. No grace period. Just gone.
The immediate effect was a record-breaking demand surge. EnergySage reported a 205% increase in homeowner engagement on its marketplace in H2 2025 as buyers raced to beat the deadline. Most installers had filled their annual capacity by October. Then January 2026 arrived, and the question every homeowner is now asking is: does solar still make sense without the credit?
The honest answer: yes, in many states — but the math changed meaningfully, and the states where it changed the most are not the states you might expect.
The Short Answer
Solar is still financially worthwhile in 2026 for homeowners in high-electricity-rate states — broadly, anyone paying above 20¢/kWh. In those markets, payback periods of 8–11 years remain realistic even without the federal credit, and 25-year lifetime savings can still run into the tens of thousands of dollars. In low-rate states (under 14¢/kWh), the economics are now genuinely marginal, and a lease or PPA deserves serious consideration over outright purchase.
What Changed on January 1, 2026
Section 25D of the Internal Revenue Code provided a 30% federal income tax credit for residential solar panel systems purchased with cash or a loan. On a median-priced system — EnergySage’s H2 2025 marketplace data put the median at $2.49/W with an average system size of 11.8 kW, implying a gross system price of roughly $29,400 — that 30% credit was worth approximately $8,820 in direct federal tax savings (EnergySage, H2 2025).
The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) eliminated this credit for any system where installation is completed after December 31, 2025. The IRS confirmed in its FAQ guidance that “an expenditure with respect to an item is treated as made when the original installation of the item is completed” — meaning contract date or deposit date are irrelevant. If your installer finished the job in January 2026 or later, you receive $0 in federal credit (IRS, 2025).
One carryforward provision survived: homeowners who completed qualifying installations before December 31, 2025 and couldn’t use the full credit against their 2025 tax liability may carry unused amounts forward to future tax years. But for any new installation in 2026, there is no federal residential solar tax credit.
What did survive: the Section 48E commercial credit, which applies to third-party-owned systems (leases and PPAs), remains in effect through December 31, 2027. This is why solar leases and PPAs have become comparatively more attractive in 2026 — the installers and financiers behind those products can still claim tax incentives and pass some value to customers.
The New Payback Math
EnergySage analysis found that solar payback periods extend by approximately 43% when the ITC is removed (EnergySage, 2025). That’s the blunt national average, but the real-world impact depends almost entirely on your local electricity rate.
Here is what the math looks like for a 10 kW system at the national median installed cost of $2.58/W (EnergySage, 2026), producing approximately 13,500 kWh per year (a reasonable assumption for a sun-belt home or well-oriented northern installation):
| Scenario | Gross Cost | Net Cost (2025) | Net Cost (2026) |
|---|---|---|---|
| 10 kW system at $2.58/W | $25,800 | $18,060 | $25,800 |
| Federal 30% credit | −$7,740 | $0 | |
Payback period by electricity rate tier, assuming a 10 kW system at $25,800 gross cost with no state incentives (annual savings = annual production × local rate):
| Electricity Rate | Annual Savings | Payback (2025 w/ITC) | Payback (2026 no ITC) |
|---|---|---|---|
| 30¢/kWh (MA, CT, CA) | $4,050 | ~4.5 yrs | ~6.4 yrs |
| 18¢/kWh (national avg) | $2,430 | ~7.4 yrs | ~10.6 yrs |
| 13¢/kWh (LA, ND) | $1,755 | ~10.3 yrs | ~14.7 yrs |
Illustrative model; assumes 13,500 kWh/yr production, 100% self-consumption (net metering at retail rate), no degradation adjustment, no state incentives. Run your actual numbers in our Solar ROI Calculator.
The key takeaway: the ITC removal adds roughly 3 years to payback at national average rates, but only 2 years at high rates — because your annual savings are higher, so you close the gap faster. Conversely, in low-rate states, the loss of the credit is catastrophic for the economics because your annual savings were already thin.
Where Solar Still Makes Strong Financial Sense
The states where solar remains a compelling investment in 2026 are unified by one factor: high retail electricity rates. When you’re paying a lot per kilowatt-hour, every kWh your panels produce is worth a lot — and the federal credit’s absence matters proportionally less.
Hawaii — 43¢/kWh
Hawaii has the highest residential electricity rate in the country at 43¢/kWh as of February 2026 (EIA, 2026) — more than 2.4x the national average. Despite relatively high installed costs ($3.23/W, EnergySage 2026), a 10 kW system can save over $5,800 per year. Payback periods of 4–6 years remain achievable, and nearly 40% of Hawaii’s single-family homes already have solar. Battery storage is now essentially mandatory given Hawaii’s utility export restrictions, but SGIP-equivalent local incentives help offset that added cost.
California — 33¢/kWh
California’s retail rate hit 33¢/kWh in February 2026 (EIA, 2026), up from roughly 24¢ just two years ago. Despite NEM 3.0’s reduced export credits (roughly 5¢/kWh for grid exports), self-consumed solar is worth every penny of that 33¢ retail rate. EnergySage quotes a $22,493 average system cost in California (2026) — one of the lowest in the country — with an estimated $129,979 in 25-year savings. A paired battery system is now the recommended strategy: maximize self-consumption during peak-rate hours and minimize expensive grid imports in the evening. California’s SGIP battery rebate remains active.
Massachusetts — 30¢/kWh
Massachusetts pairs a 30¢/kWh retail rate (EIA, 2026) with the SMART (Solar Massachusetts Renewable Target) production incentive — a 10-year performance payment that adds ongoing income on top of bill savings. EnergySage projects $154,890 in 25-year savings for Massachusetts homeowners, the highest of any state in their dataset (EnergySage, 2026). Average system cost runs $3.08/W. Full retail net metering remains in effect for residential customers.
Connecticut & New York — 31¢ and 30¢/kWh
Connecticut (30.77¢/kWh) and New York (29.99¢/kWh) both clear 30¢ (EIA, Feb 2026). New York’s NY-Sun Megawatt Block Incentive provides installer rebates of roughly $0.20–$0.80/W, and the state offers a 25% state income tax credit capped at $5,000. New York also provides full 1:1 net metering for residential customers, locked in for 20 years at interconnection — a meaningful long-term guarantee (NY-Sun, 2026). EnergySage puts 25-year savings for New York homeowners at $50,645 and Connecticut at $97,378.
Where Solar Is Now Marginal
Low electricity rates fundamentally change the calculus. When the power you’re displacing costs little, it takes a very long time to recover a five-figure upfront investment.
Louisiana — 12.87¢/kWh
Louisiana’s residential rate of 12.87¢/kWh (EIA, Feb 2026) is roughly 27% below the national average. EnergySage projects only $14,934 in 25-year savings on a system costing $28,827 installed (EnergySage, 2026) — meaning the system will not pay for itself over its entire rated lifespan under cash-purchase economics. The state offers no meaningful statewide solar rebate to compensate. A solar lease or PPA, where you pay only for the electricity you use with no capital outlay, may be a more sensible option here.
West Virginia & North Dakota — 14.4¢ and 11.6¢/kWh
West Virginia (14.41¢/kWh) and North Dakota (11.64¢/kWh) sit among the cheapest electricity states in the country (EIA, Feb 2026). North Dakota also has limited solar resource relative to southern states, compressing production estimates. Without the 30% federal credit that previously made even marginal markets viable, outright purchase of solar in these states is difficult to justify on pure financial grounds alone. Environmental motivations or plans to add EV charging (which substantially increases your effective savings) can shift the equation.
That said, “marginal” is not “never.” A homeowner in Louisiana who drives an EV and charges at home can claim far more value from each kWh produced, potentially cutting their effective payback period in half. Run your full picture in our Solar ROI Calculator before deciding.
State Incentives That Remain Strong in 2026
The federal credit may be gone, but the patchwork of state and utility programs is more important than ever. Here are the strongest remaining programs:
NY-Sun Megawatt Block & State Tax Credit
New York’s NY-Sun program pays installers a per-watt rebate ($0.20–$0.80/W depending on utility territory and income level) that is passed through to customers as a lower system price. Separately, the NY State Solar Energy System Equipment Tax Credit provides 25% of system cost as a state income tax credit, capped at $5,000. Full retail-rate net metering is locked in for 20 years. Together, these programs replace a meaningful portion of the lost federal credit (NY-Sun, 2026).
SMART Program (Massachusetts)
Massachusetts’ Solar Massachusetts Renewable Target (SMART) program pays solar owners a fixed rate per kWh generated for 10 years — independent of whether they self-consume or export. This acts as a production incentive on top of bill savings, meaningfully improving payback math. Enhanced rates apply for low-income participants and for systems paired with battery storage (Massachusetts DOER, 2026).
SGIP Battery Rebate (California)
California’s Self-Generation Incentive Program (SGIP) provides battery storage rebates of up to $1,000/kWh for qualifying households, with enhanced rates for low-income customers and those in wildfire high-risk zones. Under NEM 3.0, battery storage is essential for maximizing solar value — making SGIP more valuable than ever for new California solar adopters (California PUC, 2026).
Net Metering — Still the Most Valuable Incentive
Net metering remains in effect in most U.S. states, crediting homeowners for excess solar electricity exported to the grid. States with full retail-rate net metering (Massachusetts, New Jersey, Maryland, Vermont, Oregon, and others) provide the highest value. Illinois moved to supply-only credits for new installations in 2025. California’s NEM 3.0 reduced export rates significantly (to roughly 5¢/kWh), making self-consumption the priority strategy. For homeowners in full-retail-rate NEM states, net metering alone can substantially offset the loss of the federal credit (EnergySage, 2026).
What to Do If You’re Considering Solar in 2026
The rush is over — no more end-of-year deadline pressure. That’s actually good news. Installers are no longer overwhelmed, lead times have normalized, and you have time to make a careful decision rather than a panicked one.
- 1
Check your electricity rate first.
Your rate is the single most important input. Pull your last 12 months of utility bills and calculate your average cost per kWh. If you’re above 20¢, the economics are likely favorable. Below 14¢, scrutinize carefully.
- 2
Inventory state incentives in your area.
DSIRE (dsireusa.org) maintains a free database of all U.S. state and utility solar incentives. Spend 10 minutes there before getting a single quote. A $2,000 state rebate can change the calculus meaningfully.
- 3
Get at least three quotes.
EnergySage data shows homeowners who get multiple quotes save an average of 20% versus those who accept the first offer. The solar industry is competitive; use that to your advantage.
- 4
Compare lease/PPA vs. purchase head-to-head.
With Section 48E keeping the commercial credit alive through 2027, third-party-owned systems can offer day-one savings with no upfront cost. Use our Lease vs. Buy vs. PPA Calculator to compare the total cost of ownership for your situation.
- 5
Factor in your EV (if you have one or plan to).
An EV that charges at home can double or triple your effective annual solar savings, dramatically cutting payback periods. This is the single biggest underappreciated factor in the post-ITC solar calculation.
See Your Personal Solar Payback in 60 Seconds
Enter your electricity rate, roof size, and location to get a 2026-accurate ROI estimate — no email required, results on screen.
Not sure whether to buy, lease, or sign a PPA? Our Lease vs. Buy vs. PPA Calculator compares total 25-year cost of ownership across all three financing structures using your actual electricity rate and local solar resource.
Frequently Asked Questions
Sources
- EnergySage. (H2 2025). Solar Market Insight H2 2025 / 2026 Industry Data. energysage.com/data
- EnergySage. (2025). Solar payback periods will extend 43% longer without the ITC. energysage.com/blog/solar-payback-period-without-itc
- EnergySage. (2026). Solar Panel Cost by State (2026). energysage.com/local-data/solar-panel-cost
- PV Magazine USA. (Feb 27, 2026). Expiring incentives led to record demand, more diverse market for residential solar in 2025, says EnergySage. pv-magazine-usa.com
- U.S. Energy Information Administration (EIA). (Feb 2026). Electric Power Monthly — Retail Rates by State. eia.gov/electricity/monthly
- Internal Revenue Service. (2025). FAQs for modification of sections 25C, 25D, 25E… under the One Big Beautiful Bill (OBBB). irs.gov
- SolarInsure. (2025). The Final Version of the Solar Tax Credit Changes from the One Big Beautiful Bill. solarinsure.com
- LBNL Tracking the Sun. (2024). Tracking the Sun 2024: Pricing and Design Trends for Distributed Photovoltaic Systems. emp.lbl.gov/tracking-the-sun
- NY-Sun. (2026). Megawatt Block Incentive — Residential Program. nyserda.ny.gov/All-Programs/NY-Sun
- California Public Utilities Commission. (2026). Self-Generation Incentive Program (SGIP). cpuc.ca.gov/sgip
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Payback period estimates are illustrative and based on simplified models; actual results will vary based on your system design, local electricity rates, shading, roof orientation, financing terms, and applicable incentives. Consult a licensed solar installer and a qualified tax professional before making any investment decision. Tax law information reflects the authors’ best understanding as of May 2026 and may not reflect subsequent IRS guidance.