The 30% Federal Solar Tax Credit in 2026: What California Homeowners Still Qualify For

Adrian Marin|Independent Solar Advisor, Temecula CA

Helping Riverside County homeowners navigate SCE rates and solar options since 2020

The federal solar tax credit changed in 2025. If you buy a system outright, cash or loan, the 30% homeowner credit (Section 25D) is gone for anything placed in service in 2026 or later. If you go with a PPA or lease instead, the installer still claims a 30% credit (Section 48E) and prices the savings into your rate. This guide explains what changed, who still qualifies, and the December 31, 2027 deadline that affects PPA and lease pricing for homeowners in Temecula, Murrieta, and the rest of SW Riverside County.

How the Tax Credit Works: Dollar-for-Dollar, Not a Deduction

A tax credit is not a tax deduction. A deduction reduces the income you are taxed on. A credit reduces the actual tax owed, dollar for dollar. That distinction is why the 30% federal solar credit has been worth so much, whoever claims it.

Here is the difference in numbers. A $10,000 deduction at the 22% tax bracket saves $2,200. A $10,000 credit saves the full $10,000. The federal solar credit works like the second scenario.

For a typical Temecula or Murrieta home, a solar installation runs $25,000 to $40,000. Through 2025, a homeowner who bought that system outright could claim 30% of it, $7,500 to $12,000, directly off their federal income tax. That credit (Section 25D) ended for any system placed in service after December 31, 2025. A 2026 purchase gets none of it.

For a PPA or lease customer, none of this changes what you pay in taxes. The installer owns the system, claims the 30% commercial credit (Section 48E) on the same installed cost, and prices the savings into your monthly rate instead.

What Qualifies for the 30% Credit

The 30% credit, whether claimed as Section 25D through 2025 or as Section 48E by a PPA provider, lease provider, or business today, covers the full installed cost of a qualifying solar system. That includes more than just the panels themselves. The IRS allows these costs to be included:

• Solar panels: all modules installed on the roof or ground mount, regardless of brand or wattage.
• Inverters: string inverters, microinverters, and power optimizers all qualify.
• Battery storage: home battery systems qualify for the 30% credit when installed alongside solar. Starting in 2023, standalone battery additions to existing solar systems also qualify, as long as the battery is charged at least 70% from the solar panels. A Tesla Powerwall 3 or Enphase IQ Battery installed with a new system qualifies in full.
• Labor and installation costs: the wages your installer charges for the crew to mount, wire, and commission the system are included in your credit basis.
• Permitting fees: city or county permitting costs are part of your installed cost and count toward the credit.
• Sales tax: if sales tax applies to the equipment in your state, it is included in the eligible cost.
• Wiring, racking, and balance-of-system components: conduit, junction boxes, racking hardware, and related components are all included.
• Roofing work required for the installation: if your installer must replace a section of roofing specifically to install the panels, that portion of the roofing cost may be includable. General re-roofing that goes beyond the solar footprint is not eligible.

To give a specific example: for a $32,000, 10 kW system with a Tesla Powerwall 3, the 30% credit is worth $9,600 to whoever owns the system. On a cash or loan purchase in 2026, that is no one, the credit is gone. On a PPA or lease, the installer claims that $9,600 and prices it into your rate. If the Powerwall alone added $12,000 to the cost, that $12,000 is part of the same calculation.

Carryover: What Happens If You Cannot Use the Full Credit in One Year

This applies only to homeowners who purchased and placed their system in service on or before December 31, 2025, the last day Section 25D applied. Because the credit was nonrefundable, some of those homeowners could not use the entire credit in the year of installation, when the credit amount exceeded their total federal tax liability for the year.

Example: a homeowner installed a $35,000 solar system in November 2025. Their 30% credit was $10,500. Their total federal income tax for 2025, after other deductions and credits, was $7,000. They used $7,000 of the credit on their 2025 return, reducing their bill to zero, and the remaining $3,500 carries forward to their 2026 return.

A system purchased and placed in service in 2026 or later has no ITC to carry forward. There is nothing to carry, because the homeowner credit no longer applies to the purchase.

If you installed before the cutoff and are unsure how much of your credit carries into future years, a tax professional can help you model it. Accelerated depreciation, business deductions, or other large deductions in the year of installation can affect how much of the credit you were able to use immediately.

Who Actually Claims the 30% Credit in 2026

In 2026, no homeowner claims this credit directly, whether you buy or lease. If you sign a solar lease or a Power Purchase Agreement (PPA), the leasing company or PPA provider owns the panels and claims the 30% commercial credit (Section 48E) themselves, then prices the savings into your rate. If you buy the system outright, cash or loan, you own the panels, but there is no federal credit left to claim. Section 25D expired for expenditures after December 31, 2025.

What buying still gets you that a PPA or lease does not: the SGIP battery rebate and the California property tax exclusion, both tied to ownership rather than to the federal credit.

For a PPA or lease to keep delivering that 30% value, the installer needs the system placed in service by December 31, 2027, the deadline under Section 48E for projects that begin construction after July 4, 2026.

California State Incentives Do Not Reduce the Federal Credit

One common question from Temecula and Murrieta homeowners is whether claiming SGIP affects other incentives. For a system purchased in 2026, there is no federal ITC on the battery for it to interact with, since Section 25D no longer applies to any 2026 purchase. SGIP is unaffected by that change and pays out on its own schedule regardless of how you finance or own your system.

California's property tax exclusion, which prevents solar from triggering a reassessment of your home's value, is also unaffected. It applies to systems you own, independent of the federal credit.

For a business that owns its own solar and battery system, the math is different: the business can still claim the 30% Section 48E credit, and SGIP reduces the tax basis of the battery portion before that 30% is calculated. A business installing a 13.5 kWh Powerwall at $12,000 that receives a $4,000 SGIP rebate has an $8,000 adjusted basis for the battery, worth $2,400 in credit rather than $3,600 on the full amount.

Example: $12,000 battery, $4,000 SGIP rebate, business-owned. Without SGIP: credit is $3,600, net cost is $8,400. With SGIP: SGIP pays $4,000, credit is $2,400 on the $8,000 adjusted basis, net cost is $5,600. The SGIP makes the business better off by $2,800.

What Replaced the Step-Down Schedule

Before the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, the residential 30% credit was scheduled to run at 30% through 2032, then step down to 26% in 2033 and 22% in 2034 before expiring. OBBBA eliminated that schedule for Section 25D. There is no step-down now: the homeowner purchase credit simply ended for anything placed in service after December 31, 2025.

The commercial credit that PPA and lease providers claim, Section 48E, follows a different rule. For a project that begins construction after July 4, 2026, the credit only applies if the system is placed in service by December 31, 2027. That deadline, not a percentage step-down, is what to watch if you are considering a PPA or lease in 2026.

For most Temecula and Murrieta homeowners weighing a PPA or lease in 2026, the practical question is whether your installer can get your system placed in service before that December 2027 deadline. Signing earlier in the year gives more margin for permitting and installation delays.

How to Claim the Credit on IRS Form 5695

Form 5695 only matters now if you purchased and placed your system in service on or before December 31, 2025. If that is you, you still file it, titled "Residential Energy Credits," with your return for that tax year. The form is straightforward:

• Line 1: enter your total qualified solar electric property costs. This is the full installed cost of your system, including panels, inverter, battery, labor, permits, and sales tax. For the battery portion, subtract any SGIP rebate received before entering this number.
• Lines 2-4: apply the 30% multiplier and combine with other qualifying energy property credits if applicable.
• Lines 14-18: calculate how much of the credit you can use this year based on your tax liability, and determine any carryforward amount.

Your installer should provide a final contract, paid invoice, or itemized cost statement that you use to populate Line 1. Keep this documentation in your records for at least three years after filing, longer if you carry the credit forward.

If you use tax software such as TurboTax or H&R Block, the software will walk you through Form 5695 as part of the energy credits section. If you work with a CPA, bring your installer's final invoice and let them handle the form.

One important note: Form 5695 must be filed with your federal tax return for the year the system is placed in service. You cannot file it a year later for a system that was commissioned in a prior year, except through an amended return (Form 1040-X), which is possible but adds complexity and filing cost.

If your system will be placed in service in 2026 or later as a purchase, there is nothing to file on Form 5695. If you go the PPA or lease route instead, you do not file anything either: the installer claims Section 48E, not you.

Ownership Requirements and Other Eligibility Rules (Section 25D, Through December 31, 2025)

To claim the 25D credit on a system placed in service by that date, a homeowner had to meet these basic eligibility requirements:

• You own the system: you purchased it outright or financed it. Leases and PPAs do not qualify.
• The system is on your primary or secondary residence: the property must be a home located in the United States. It does not have to be your primary residence. A vacation home or second property qualifies as long as you own it and the system is on that property.
• The system is new: the credit applies to original installation. You cannot claim the credit a second time on a used system you purchase from another homeowner.
• You have federal tax liability: since the credit is nonrefundable, you must owe federal income tax to benefit from it. Homeowners with zero federal tax liability cannot use the ITC in the current year, though they can carry it forward to years when they do owe tax.
• The system is placed in service in the tax year you are claiming: installation must be complete and the system must be operational before December 31 of the year for which you are claiming the credit.

What This Means for Temecula and Murrieta Homeowners in 2026

For a homeowner in SW Riverside County buying a system outright in 2026, there is no federal credit to apply. A $30,000 system costs $30,000. SGIP can still reduce the cost of an accompanying battery, on its own schedule and income tier, regardless of the ITC change.

SCE rates in Riverside County averaged 28 to 34 cents per kWh in 2025 and have increased every year since 2019. At 30 cents per kWh and 13,000 kWh per year in avoided grid purchases, solar eliminates $3,900 per year in electricity costs. On a $30,000 purchase with no federal credit, the payback period is just under eight years ($30,000 net cost divided by $3,900 in annual savings = 7.7 years), before accounting for continued rate increases, which have averaged 6 to 8 percent annually over the last five years.

The bigger question for 2026 is financing route. A PPA or lease still carries the 30% credit's value through the installer's rate, but only if the system is placed in service by December 31, 2027 under the Section 48E rules for projects starting after July 4, 2026. A cash or loan purchase has no such deadline, and no such credit, attached to it.

What does create urgency either way is SGIP funding. The SGIP battery rebate is first-come, first-served within each budget step. When a step closes, the next step may open at a lower rate or not open at all for some period. Homeowners who want the SGIP rebate on a battery should not delay the decision waiting for a better moment, because the SGIP window can close at any time.