Is Solar Worth It in 2026? A Homeowner’s Guide to Financing Without the Federal Tax Credit

Table of Contents

• What Changed: The End of the Federal Solar Tax Credit
• Why Solar Still Makes Financial Sense in 2026
• State and Local Incentives That Still Exist
• Your Solar Financing Options in 2026
• How a HELOC Works for Solar Financing
• Pros and Cons of Using a HELOC for Solar
• Should You Consider a Lease or PPA Instead?
• Is Solar Right for You in 2026?
• Frequently Asked Questions

What Changed: The End of the Federal Solar Tax Credit

For nearly two decades, a federal tax credit made solar panels meaningfully more affordable for American homeowners. That credit is now gone. On July 4, 2025, President Trump signed the One Big Beautiful Bill into law, which eliminated the residential Section 25D solar tax credit for systems installed after December 31, 2025.

Previously, the Inflation Reduction Act had extended the 30% credit all the way through 2032 — a decade of certainty that helped fuel the residential solar boom. The new law cut that runway short with no phase-down period. One day the credit existed; the next, it didn’t.

If you installed solar in 2025, you can still claim the credit on your 2025 federal tax return using IRS Form 5695. Any unused portion carries forward to future tax years. But for systems installed in 2026 and beyond — if you own the system outright — there’s no federal incentive.

The one remaining federal pathway is through third-party ownership: solar leases and power purchase agreements (PPAs), where a business owns the panels and claims the federal business tax credit under Section 48E. That credit remains available through 2027. More on that option later.

Why Solar Still Makes Financial Sense in 2026

Here’s something the headlines often miss: the case for rooftop solar in 2026 may actually be stronger than it was five years ago — not because of incentives, but because of what’s happening to your electricity bill.

Residential electricity rates jumped 11.5% in 2025, according to the U.S. Energy Information Administration — far outpacing general inflation. And Goldman Sachs analysts project rates will continue rising through the end of the decade, with AI data centers accounting for roughly 40% of electricity demand growth.

To put it in numbers: before 2019, U.S. households paid around 13 cents per kilowatt-hour. By the end of 2025, that figure had climbed to roughly 19 cents — a 46% increase in nominal terms. The Environmental and Energy Study Institute estimates electricity prices could rise an additional 40% by 2030 compared to today.

The culprit is no mystery. Electricity demand from data centers soared 17% in 2025 alone, according to the International Energy Agency. A typical AI-focused data center consumes as much electricity as 100,000 households. And in regions near data center hubs — like northern Virginia, Maryland, and parts of the Midwest — the price impact is especially sharp. Wholesale electricity costs jumped as much as 267% over five years near major data center clusters, according to a Bloomberg News analysis.

Meanwhile, solar panel costs have dropped dramatically — by more than 90% over the past 15 years, as manufacturing scaled and installation became more efficient. A typical residential system now costs between $15,000 and $30,000 before incentives, depending on size and location. Without the 30% federal credit, the effective out-of-pocket cost is higher than it was in 2025, but the math on long-term savings has never been more compelling.

Most homeowners who own their systems can expect to break even in six to ten years, after which they generate electricity at essentially no cost. In a world where utility rates are climbing by 5–10% annually, that’s a more attractive proposition than it was when rates were flat.

State and Local Incentives That Still Exist

While the federal credit is gone for homeowner-purchased systems, state and local programs vary widely — and in some states, they’re substantial. Here’s an honest overview of what remains:

State Tax Credits

A handful of states offer their own solar income tax credits. New York’s state credit covers 25% of system costs up to $5,000. South Carolina offers 25% up to $35,000. Massachusetts offers 15% up to $1,000. Arizona, Hawaii, New Mexico, South Carolina, and Utah also have state-level credits. If you live in one of these states, stacking a state credit with other local incentives can still meaningfully reduce your upfront cost.

Upfront Rebates

Some states and utilities pay cash rebates at the time of installation. New York’s NY-Sun program offers $0.20 to $0.80 per watt depending on your utility, which can translate to $1,500–$6,000 on a typical system. Maryland offers a statewide $1,000 rebate. Oregon utilities offer $900–$1,200. These are real dollars off the top — no tax liability required.

Solar Renewable Energy Certificates (SRECs)

In states like New Jersey, Maryland, Ohio, Pennsylvania, Virginia, Delaware, and Washington D.C., you can earn money for the electricity your panels produce. New Jersey’s Successor Solar Incentive (SuSI) program pays a fixed rate of $85 per megawatt-hour, locked in for 15 years — potentially worth $10,000 or more over the system’s lifetime.

Property and Sales Tax Exemptions

Many states ensure that adding solar panels to your home won’t trigger a higher property tax bill, even though the panels typically increase your home’s value. Additionally, about 15 states exempt solar equipment from state sales tax — saving $500 to $2,000 or more on a typical installation. These quiet incentives often go unclaimed because homeowners don’t know to look for them.

Net Metering

If your utility offers net metering, excess electricity your panels send back to the grid reduces your bill — sometimes at full retail rates. This is one of the most impactful ongoing benefits of owning solar, and it’s available in most states, though policies vary significantly by utility and state. Always confirm your utility’s net metering policy before installing, as some states and utilities have been revising how much they credit homeowners for excess energy.

Your best resource for a state-by-state breakdown is the Database of State Incentives for Renewables & Efficiency (DSIRE), which maintains updated listings of every active solar program in the country. Because funding levels and program availability change frequently, always verify current status before signing a solar contract.

Your Solar Financing Options in 2026

Without the federal tax credit, the choice of how to finance your solar system matters more than ever. Here’s a clear comparison of your main options:

*Under a lease or PPA, the solar company owns the system and claims the federal business tax credit. They may pass some savings to you through lower payments.

How a HELOC Works for Solar Financing

A home equity line of credit (HELOC) lets you borrow against the equity in your home up to a set credit limit — typically up to 80–85% of your home’s appraised value, minus what you still owe on your mortgage. You draw funds as you need them, pay interest only on what you’ve borrowed, and repay over time.

For a solar installation, a HELOC works especially well because the draw is usually a single, defined amount. You borrow what the installation costs, then repay it over the repayment period. Many HELOCs offer an initial draw period of 5 to 10 years where you only pay interest, followed by a repayment phase where principal and interest are due together.

On a $20,000 solar system at a HELOC rate of 8%, your interest-only payment during the draw period would be around $133 per month — often offset in part or full by what you’re saving on your electricity bill from day one.

One key tax point worth knowing: the IRS allows you to deduct interest on a HELOC when the funds are used to “buy, build, or substantially improve” the home that secures the loan. Solar panels attached to your roof qualify as a home improvement, which means the interest on your HELOC may be deductible — effectively reducing the true cost of borrowing. Consult a tax professional to confirm your specific situation, as deductibility depends on itemizing and other factors.

If you’re in the market to compare HELOC rates from lenders in your area, see today’s rates below:

Pros and Cons of Using a HELOC for Solar

Advantages

• Lower interest rates than unsecured options. Because your home secures the loan, HELOCs typically carry lower rates than personal loans or solar-specific financing products. This can meaningfully reduce the total cost of borrowing over time.
• You own the system. Ownership means you capture the full value of net metering credits, any state incentives you qualify for, and the home value increase that solar typically provides. You’re not sharing the economics with a third-party owner.
• Flexible draw and repayment. You borrow only what you need, and some lenders allow early payoff without penalties. If you sell your home, you can pay off the HELOC from the proceeds.
• Potential tax deductibility. HELOC interest used for home improvements may be deductible if you itemize — giving you a partial offset on your borrowing costs that other solar loan products don’t offer.
• Reusable credit line. After you pay down the balance, you may be able to draw from the HELOC again for other projects — a built-in flexibility that solar-specific loans don’t provide.

Disadvantages

• Your home is collateral. A HELOC is secured by your home. If your income drops and you can’t make payments, you risk foreclosure. This is the most important risk to understand before proceeding.
• Variable rates. Most HELOCs carry variable interest rates, which means your payment could rise if rates move up. Some lenders offer rate locks on portions of the balance, which can help manage this risk.
• You need adequate equity. Lenders typically require at least 15–20% equity remaining after the HELOC — meaning if your home is worth $350,000 and you owe $290,000, you have limited borrowing room. Run the numbers before applying.
• Closing costs and fees. HELOCs may come with appraisal fees, origination fees, and annual fees. Get the full cost disclosure from any lender before committing.

To explore your HELOC options and estimate what you might qualify for, try our HELOC calculator or review our guide to the best HELOC lenders.

Should You Consider a Lease or PPA Instead?

Given that solar leases and power purchase agreements (PPAs) remain eligible for the federal business tax credit through 2027 under Section 48E, they’re worth a serious look — especially if you live in a state with limited state-level incentives.

Here’s how it works: a solar company installs panels on your roof and owns them. The company claims the federal tax credit and other applicable incentives. In exchange, you either pay a monthly lease payment (typically lower than your old electricity bill) or purchase the electricity the panels produce at a contracted rate (a PPA). You don’t pay the installation cost upfront.

The trade-offs are real, though. Because you don’t own the system, you don’t capture the full benefit of net metering credits, you may not qualify for state incentives that require ownership, and your home value increase from solar may be smaller. Lease and PPA agreements can also have complicated terms — 20-year contracts aren’t unusual — and can complicate a home sale if the buyer doesn’t want to assume the agreement.

One option worth exploring is a prepaid lease: you pay a lump sum upfront in exchange for 20+ years of essentially free electricity from the panels. The solar company still owns the system and claims the 48E tax credit, but you lock in low effective energy costs from day one. Some prepaid leases also include a buyout option after six years, at which point you can take ownership of the system at a reduced price.

The right answer depends on your state’s incentive landscape, your tax situation, your credit, and how long you plan to stay in your home. There’s no universal winner between owning and leasing in 2026 — but owning tends to produce stronger long-term returns in states with robust incentives and strong net metering.

Is Solar Right for You in 2026?

Without the federal tax credit, solar requires a more careful analysis than it did a year ago. Here’s how to think through whether it makes sense for your situation.

Questions Worth Answering Before You Sign Anything

• What does your state offer? Start at DSIRE (dsireusa.org) and your utility’s website. If you’re in New York, New Jersey, Massachusetts, Maryland, Illinois, or California, your state may still offset a meaningful portion of costs. If you’re in a state with minimal programs, your payback timeline will be longer.
• What are your current electricity costs — and what might they become? Get 12 months of bills and calculate your average monthly usage. Then factor in that rates are likely to keep climbing. Homeowners paying $200 or more a month in electricity have a much stronger solar case than those paying $80.
• How long do you plan to stay? Solar payback periods in a post-credit environment are typically 7–12 years. If you’re planning to move in 3 years, ownership may not pencil out — though solar does add to home resale value.
• Can you qualify for a HELOC or solar loan at a reasonable rate? Your equity position and credit score will determine your borrowing options. If rates are high, an ownership structure’s economics get harder.
• What’s your roof situation? Solar panels are a 25-year commitment to a specific roof. If your roof is 15 years old, factor in replacement costs — either before installation or bundled into the project quote.

Get at least three quotes from licensed local installers before deciding. Ask each installer to walk you through all applicable state and utility incentives, show you their net metering assumptions, and provide a 25-year savings projection. Compare those projections to what you’d pay to finance the system.

For most homeowners in states with active incentive programs, and certainly for those facing rising electricity costs, solar remains a sound long-term investment in 2026. It’s just one that requires more homework than it did when a 30% federal credit smoothed over a lot of the math.

Frequently Asked Questions

Related reading: HELOC Guide | HELOC vs. Home Equity Loan vs. Cash-Out Refinance | Using a HELOC as an Emergency Fund