Is Home Solar Still Worth It After the Federal Tax Credit Changes?
The 30% homeowner solar credit is gone. Here's how to run your own payback math in 2026 and decide whether rooftop solar still makes sense.
Home solar can still be worth it in 2026, but the payback takes longer now that the 30% federal homeowner credit ended for systems placed in service after December 31, 2025. It pays off best where electricity is expensive, your utility credits exported power well, you get a competitive cash price and you plan to stay 10 or more years.
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For years, the pitch for home solar came with a built-in discount: buy a system, and the federal government paid back 30% of the cost at tax time. That credit is gone for homeowners who buy a system installed in 2026 or later.
So is solar still a good deal? For some homes, yes. For others, the math no longer works. The only way to know is to run your own numbers, and the good news is you don’t need a spreadsheet degree to do it.
This guide explains what changed, what still affects your savings, and a simple payback formula you can use on any quote.
What changed with the federal solar tax credit
The Residential Clean Energy Credit (Section 25D) gave homeowners a credit equal to 30% of the cost of qualifying solar panels, solar water heaters and battery storage of at least 3 kWh. The Inflation Reduction Act had extended it into the 2030s.
The budget law signed on July 4, 2025, ended it early. The IRS now states the credit isn’t available for any property placed in service after December 31, 2025, and that you claim it for the tax year the property is installed, not merely purchased.
What that means for you:
- Installed and in service by the end of 2025? You can still claim the credit on your 2025 return. It’s nonrefundable, but the IRS says unused credit can carry forward to reduce tax in future years.
- Buying and installing in 2026 or later? No federal homeowner credit. Your payback math has to stand on its own.
- Leasing or signing a power purchase agreement (PPA)? The solar company owns the system, so it may claim a business credit instead. IRS instructions say wind and solar facilities that begin construction after July 4, 2026 must be placed in service by the end of 2027 to qualify. Those rules are complex, and how much of any credit gets passed to you is up to the company.
This is general information, not tax or legal advice. Talk to a tax professional about your situation.
Key takeaway: Without the 30% credit, solar’s value depends almost entirely on 3 things: your installed price, your electricity rate and how your utility credits the power you send back to the grid.
The 5 factors that decide whether solar pays off
1. Your installed price
Berkeley Lab’s 2026 data update found the median installed price for homeowner-owned residential systems was about $3.60 per watt in 2025, with cash purchases around $3.00 per watt and loan-financed systems around $4.50. Prices fell about $0.50 per watt from 2024, which offsets some of the lost credit. Our guide on solar panel cost explains how to read a quote.
2. Your electricity rate
The more you pay per kWh, the more each solar kWh saves. The U.S. Energy Information Administration (EIA) reports the average U.S. residential price was 17.3 cents per kWh in 2025 and forecasts 18.2 cents in 2026. Rates vary a lot by state. Our explainer on why electricity bills are rising covers what’s driving the increases.
3. How your utility credits exports
This one surprises people. Solar panels produce the most power at midday, when many homes use the least. What you’re paid for that extra power matters.
- Full retail net metering: Exported kWh earn roughly the same credit as the power you buy. This is the best case for solar.
- Net billing or avoided-cost rates: Exports earn less than retail. California’s Net Billing Tariff, for example, applies to customers who applied to interconnect on or after April 15, 2023, and pays export credits based on the utility’s avoided cost, which the state utility commission says is usually lower than the retail rate.
Check your utility’s current solar tariff before you trust any savings estimate.
4. How much sun your roof gets
Location, roof direction, tilt and shade determine production. A system in Arizona produces more per panel than the same system in Washington State.
5. How long you’ll stay
Solar is a long-term investment. If you might move in a few years, the payback may not arrive before you sell, and resale value is hard to predict.
How to run your own payback math
You need 4 numbers. Here’s the simple version.
- Net cost: the cash price, minus any state or utility incentives.
- Annual production: kWh per year from the installer’s estimate. Double-check it with PVWatts, the free calculator from the national lab formerly known as NREL.
- Your usage split: roughly how much of that production you’ll use directly and how much you’ll export.
- Your rates: your retail rate for power you avoid buying, and your export credit rate.
Then:
- Annual savings = (kWh used directly x retail rate) + (kWh exported x export rate)
- Simple payback (years) = net cost / annual savings
A worked example
These numbers are illustrative assumptions, not a forecast for your home. A homeowner pays $23,100 cash for a 7.7 kW system ($3.00 per watt). The installer estimates 10,500 kWh a year. Their retail rate is 18 cents.
| Scenario | Annual savings | Simple payback |
|---|---|---|
| Full retail net metering, no federal credit | 10,500 x $0.18 = $1,890 | About 12 years |
| Net billing: half exported at 5 cents, no federal credit | (5,250 x $0.18) + (5,250 x $0.05) = $1,208 | About 19 years |
| Full retail net metering, with the old 30% credit ($16,170 net cost) | $1,890 | About 8.5 years |
| Net billing as above, paying a loan-level price of $4.50 per watt ($34,650) | $1,208 | About 29 years |
The difference between the best and worst rows is enormous, and it comes from export rules and price, not the panels themselves. This simple model leaves out rising utility rates (which shorten payback), panel degradation and maintenance (which lengthen it), and loan interest.
When solar is still worth it, and when it isn’t
| Solar looks good if… | Think twice if… |
|---|---|
| Your electricity rate is well above the national average | Your rates are low |
| Your utility offers net metering or strong export credits | Exports earn a small fraction of retail |
| You can pay cash or get a low-rate loan from your bank | The only financing includes a large dealer fee |
| Your roof is sunny, unshaded and has years of life left | The roof needs replacing soon or is heavily shaded |
| You plan to stay at least 10 years | You may move within a few years |
| You’re adding an EV or heat pump that will raise usage | Your usage is already low |
| State or utility incentives are available | No local incentives exist |
If you’re adding electric loads, solar can offset them. Our guides to home vs public EV charging costs and heat pumps vs furnaces help you estimate how much your usage might grow.
Should you add a battery?
A battery can raise the value of solar where exports pay little, because you store midday power and use it in the evening instead of selling it cheaply. It also gives you backup power. Berkeley Lab found 37% of new residential solar systems in 2025 included storage, up from 25% a year earlier.
But batteries add significant cost. Among cash purchases, solar-plus-storage systems had a median price $2.10 per watt higher than solar alone in 2025, according to Berkeley Lab. Read our guide to home battery backup before deciding.
Alternatives if the math doesn’t work
- Community solar. If your state has a program, you can subscribe to an off-site solar farm and get bill credits with no upfront cost. See how community solar works.
- Lease or PPA. You pay little or nothing upfront, and the company may still capture a business tax credit. Read the contract carefully for price escalators and home-sale terms. Our comparison of solar lease vs loan vs cash walks through the tradeoffs.
- Efficiency first. Insulation, air sealing, a smart thermostat and efficient appliances often cost less and pay back faster. A smart home setup can help you track and shift usage.
- Wait and watch. Prices have been falling. Getting fresh quotes in a year costs nothing.
Where to start
- Gather 12 months of utility bills and note your kWh use and current rate.
- Look up your utility’s solar export tariff on its website or your state utility commission’s site.
- Search DSIRE (the Database of State Incentives for Renewables and Efficiency) for state and local incentives.
- Get at least 3 cash quotes and compare price per watt.
- Run the payback formula above with each quote, using conservative assumptions.
- Decide on financing last. If you borrow, compare the installer’s loan with your own bank or credit union, and always ask for the cash price.
The bottom line
Losing the 30% credit stretched solar payback periods, but it didn’t kill the case for solar. Lower prices, higher electricity rates and good export credits can still make it pay. The homes that come out ahead pay a competitive price, sit under a sunny roof, get fair credit for exports and stay put long enough to collect the savings. Run your own numbers, use conservative assumptions, and let the math, not the sales pitch, decide.
Sources
- IRS: Residential Clean Energy Credit — 30% credit, 3 kWh battery minimum, end for property placed in service after December 31, 2025, and carryforward of unused credit
- IRS: Instructions for Form 3468 — business credit termination for wind and solar facilities placed in service after 2027 that begin construction after July 4, 2026
- Berkeley Lab: U.S. Distributed Solar and Storage Data, 2026 Update — 2025 installed prices, storage attachment rates and storage price premium
- U.S. Energy Information Administration: Short-Term Energy Outlook, October 2026 — average residential electricity price of 17.3 cents per kWh in 2025 and 18.2 cents forecast for 2026
- California Public Utilities Commission: Net Billing Tariff — start date of April 15, 2023 and avoided-cost export compensation
Frequently asked questions
Is solar worth it without the tax credit?
It can be. Without the 30% credit, solar pays off best where electricity rates are high, your utility credits exports at or near retail, and you pay a competitive cash price. In those conditions, simple payback can still land around a decade or so. With low rates, weak export credits or an expensive loan, payback can stretch past 20 years.
Did the federal solar tax credit end?
Yes, for homeowners who buy their own system. The IRS says the Residential Clean Energy Credit isn't available for property placed in service after December 31, 2025. If your system was installed by then, you can claim it on your 2025 return and carry forward unused credit. Businesses that own leased systems follow separate rules.
How long does it take for solar panels to pay for themselves?
It varies widely, from under 10 years to more than 20. Divide your net cost by your annual bill savings to estimate it. The biggest swing factors are your installed price per watt, your electricity rate and how much your utility pays for exported power. Rising utility rates shorten payback, while loan interest and maintenance lengthen it.
Is it better to lease solar now that the tax credit is gone?
Sometimes. Solar companies that own leased systems may still claim a business credit under separate rules, which can lower lease or PPA pricing. But you won't own the equipment, payments may rise with an escalator, and a lease can complicate a home sale. Compare the total lease cost with a cash or low-rate loan purchase before deciding.
Do solar panels increase home value?
They can, but the effect is hard to predict and varies by market. Owned systems are usually easier for buyers to value than leased ones, which require the buyer to take over a contract. Appraisers may weigh the system's age, size and remaining warranty. Don't count on a resale premium as part of your payback math.
Are there still state incentives for solar?
In many places, yes. Some states, cities and utilities offer rebates, tax credits, property tax exemptions or performance payments for solar and batteries. Programs change often and some have limited funding. Search DSIRE, the national database of state incentives, and check your utility's website before getting quotes so installers can include them.
Is solar worth it if I might move in 5 years?
Usually not, unless your payback is very short. With the federal credit gone, most systems take longer than 5 years to pay for themselves, and you may not recover the full cost in a sale. If you might move, consider community solar, efficiency upgrades or simply waiting until you're settled in a long-term home.
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Manishdai
Manishdai writes about the technology that is reshaping every industry — from AI agents and cloud platforms to healthtech, fintech and the IT companies building it all across the United States.
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