The solar landscape changed dramatically when President Trump signed the “One Big Beautiful Bill” on July 4, 2025, ending the 30% federal residential solar tax credit nearly a decade ahead of schedule. Systems installed after December 31, 2025, no longer qualify for the federal Investment Tax Credit (ITC) that had been in place since 2005.
But here’s the good news: state and local incentives didn’t disappear with the federal credit. In fact, state-level programs now matter more than ever for homeowners considering solar. Depending on where you live, you can still offset 20% to 50% of your system cost through state tax credits, rebates, performance payments, and property tax exemptions.
This guide covers the best states for solar incentives in 2026, now that homeowners must rely entirely on state and local programs.
Key Takeaways
- The federal 30% residential solar tax credit ended December 31, 2025 — homeowner-owned systems installed in 2026 and beyond receive no federal tax benefit.
- Third-party owned systems (leases and PPAs) can still access federal credits through 2027, making these options more attractive in states without strong state incentives.
- New York offers the most comprehensive state incentives: a 25% state tax credit (up to $5,000), upfront rebates, sales tax exemption, and property tax exemption.
- New Jersey’s SREC-II program pays $85 per megawatt-hour of solar production for 15 years — worth $10,000+ over the system’s lifetime.
- States with net metering, property tax exemptions, and sales tax exemptions still make solar financially viable even without the federal credit.
Table of Contents
- What Happened to the Federal Solar Tax Credit
- Types of State Solar Incentives
- Top 10 States for Solar Incentives in 2026
- Third-Party Owned Solar: An Alternative Path
- Frequently Asked Questions
What Happened to the Federal Solar Tax Credit
For nearly two decades, the federal Investment Tax Credit (ITC) was the cornerstone of residential solar economics. Originally established in 2005 and extended multiple times by both Republican and Democratic administrations, the credit allowed homeowners to deduct 30% of their solar installation costs from their federal income taxes.
The Inflation Reduction Act of 2022 had extended the 30% credit through 2032, with a gradual phase-down through 2034. But the One Big Beautiful Bill, signed into law on July 4, 2025, terminated the residential clean energy credit (Section 25D) as of December 31, 2025 — with no phase-down period.
What this means for homeowners in 2026:
- Systems installed before January 1, 2026: Eligible for the full 30% federal credit (no retroactive changes).
- Homeowner-purchased systems installed January 1, 2026 or later: No federal tax credit available.
- Third-party owned systems (leases and PPAs): The company owning the system can still claim business credits through 2027, potentially passing some savings to homeowners.
This fundamental shift makes state incentives the primary financial lever for homeowners going solar in 2026 and beyond.
Types of State Solar Incentives
State solar incentives generally fall into several categories. Understanding these will help you evaluate which states offer the best overall value:
State Tax Credits: Similar to the former federal credit, these allow you to deduct a percentage of your solar installation cost from your state income taxes. States with income tax credits include New York (25% up to $5,000), South Carolina (25% up to $35,000), and Massachusetts (15% up to $1,000).
Rebates: Upfront cash payments that directly reduce your installation cost. Maryland offers a $1,000 rebate, Oregon utilities offer $900-$1,200, and New York’s NY-Sun program provides $0.20-$0.80 per watt depending on your location and utility.
Solar Renewable Energy Certificates (SRECs): Performance-based payments for the clean energy your system produces. New Jersey’s SREC-II program pays $85 per megawatt-hour for 15 years. States with active SREC markets include New Jersey, Massachusetts, Pennsylvania, Maryland, Ohio, and Washington D.C.
Net Metering: Allows you to earn credits on your utility bill when your solar panels produce more electricity than you use. The credits offset future electricity purchases, often at the full retail rate. Most states offer some form of net metering or comparable compensation.
Property Tax Exemptions: Prevents your property taxes from increasing due to the added home value from solar panels. Currently offered in 34 states.
Sales Tax Exemptions: Eliminates state sales tax on solar equipment purchases. Currently offered in 22 states, saving 4-8% on system costs depending on your state’s sales tax rate.
Top 10 States for Solar Incentives in 2026
1. New York
New York remains the best state for solar incentives, offering a comprehensive package that can cover more than half of system costs even without the federal credit.
State Tax Credit: The Solar Energy System Equipment Credit provides 25% of your system cost, up to $5,000. Unlike some credits, this applies to leased systems and power purchase agreements too. Any unused credit can be carried forward for up to five years.
NY-Sun Rebate: Through NYSERDA’s NY-Sun program, homeowners receive upfront rebates of $0.20-$0.80 per watt depending on utility territory. Low-to-moderate income households qualify for higher rebates through the Affordable Solar Residential Incentive.
Tax Exemptions: New York exempts solar equipment from the 4% state sales tax (saving roughly $900 on an average system) and excludes solar’s added value from property tax assessments.
NYC Bonus: New York City residents can claim the Solar Electric Generating System (SEGS) property tax abatement — 7.5% of installation cost annually for four years, worth up to 30% total.
Net Metering: Available for systems up to 25 kW, with full retail credit for excess generation.
2. New Jersey
New Jersey’s Successor Solar Incentive (SuSI) program makes the Garden State one of the most financially attractive markets for solar, even without federal incentives.
SREC-II Program: Through the SuSI program, homeowners earn one SREC-II certificate for every megawatt-hour (1,000 kWh) of electricity their system produces. Each certificate is worth $85 and payments continue for 15 years. An average 6 kW system producing about 7,500 kWh annually would earn roughly $640 per year — more than $9,500 over the program term.
Tax Exemptions: Solar equipment is exempt from New Jersey’s 6.625% sales tax, saving about $1,650 on a $25,000 system. Solar also qualifies for property tax exemption.
Net Metering: Full retail-rate credits for excess generation, independent of SREC-II payments.
3. Massachusetts
Massachusetts has rebuilt its solar incentive program specifically to account for the loss of federal credits, launching SMART 3.0 in 2025.
SMART Program: The Solar Massachusetts Renewable Target program provides fixed per-kilowatt-hour payments for 10 years based on your system’s actual production. Compensation rates are reviewed annually and vary by utility (Eversource, National Grid, or Unitil), system size, and whether you include battery storage. Systems with batteries receive additional compensation through storage adders.
State Tax Credit: Massachusetts offers a 15% state tax credit on solar installations, up to $1,000.
Tax Exemptions: Solar systems up to 25 kW are exempt from property tax assessments for 20 years. No state sales tax on solar equipment.
Battery Incentives: The ConnectedSolutions program pays $275 per kW for allowing utility access to your battery storage during peak demand periods.
4. Maryland
Maryland combines a state rebate with one of the country’s more valuable SREC markets.
State Rebate: The Residential Clean Energy Rebate Program provides $1,000 cash back for solar systems over 1 kW (which includes virtually all residential installations) and $500 for solar water heating systems.
SRECs: Maryland has an active Solar Renewable Energy Certificate market where homeowners can sell certificates generated by their systems. Values fluctuate with market conditions but typically range from $50-$80 per certificate.
Tax Exemptions: Solar is exempt from Maryland’s 6% sales tax and from property tax increases.
Net Metering: One of the strongest net metering policies in the country, with full retail credit and no system size restrictions for residential customers.
5. Rhode Island
Rhode Island offers a unique combination of upfront rebates and long-term performance payments.
REF Rebate: The CommerceRI Renewable Energy Fund provides rebates of $0.85 per watt, up to $7,000, for residential solar installations. On a typical 8 kW system, that’s about $6,800 off the top.
Renewable Energy Growth Program: Beyond the upfront rebate, Rhode Island pays $0.2875 per kWh for solar production over 15 years — one of the highest performance payment rates in the country.
Tax Exemptions: Solar systems are exempt from Rhode Island’s 7% sales tax and from property tax increases.
6. Connecticut
Connecticut’s incentives focus on ongoing production value rather than upfront rebates.
Renewable Energy Solutions Program: Homeowners can sell Renewable Energy Certificates (RECs) generated by their solar production to participating utilities.
Energy Conservation Loan Program: Low-interest loans of up to $25,000 with rates between 0-6% and terms up to 10 years help offset the loss of the federal credit.
Tax Exemptions: No sales tax (6.35%) on solar equipment. Property tax exemption for the added home value from solar.
Net Metering: Available for residential systems with full retail credit.
7. South Carolina
South Carolina offers one of the most generous state tax credits in the country.
State Tax Credit: South Carolina provides a 25% state income tax credit on solar installations. Unlike most states, the cap is exceptionally high at $35,000 (or 50% of your state tax liability per year), making it valuable even for larger systems. Unused credit can be carried forward for 10 years.
Property Tax Exemption: Solar installations are exempt from property tax assessments.
Net Metering: Available through investor-owned utilities with full retail credit.
8. New Mexico
New Mexico offers multiple pathways to solar savings.
Sustainable Building Tax Credit: Homeowners can claim up to $6.50 per square foot on income taxes for solar installations, provided the home receives U.S. Green Building Council certification.
Solar Market Development Tax Credit: A 10% state tax credit toward solar energy expenses, up to $6,000.
Property Tax Exemption: Solar’s added home value is exempt from property taxes.
Net Metering: Available statewide with retail-rate credits.
9. Colorado
While Colorado lacks a statewide rebate program, local utility incentives and strong net metering make it attractive.
Utility Rebates: Major utilities including Xcel Energy and Black Hills Energy offer varying rebates for residential solar. Amounts and availability change, so check current offerings with your utility.
Tax Exemptions: Solar equipment is exempt from both state sales tax and property tax increases.
Community Solar: For homeowners who can’t install rooftop panels, Colorado has one of the country’s most developed community solar markets.
10. Iowa
Iowa’s combination of tax exemptions makes solar more affordable despite limited rebate programs.
Property Tax Exemption: Solar installations are fully exempt from property tax assessments — the added home value won’t increase your property taxes.
Sales Tax Exemption: No state sales tax (6%) on solar equipment purchases.
Net Metering: Available through investor-owned utilities, though credits must be cashed out annually rather than banked indefinitely.
How to Finance Solar Without the Federal Credit
With the federal tax credit gone, upfront costs matter more than ever. Most homeowners don’t pay cash for a $25,000-$35,000 solar installation — they finance it. Here’s how your options compare in 2026:
HELOC (Home Equity Line of Credit)
A HELOC is often the smartest way to finance solar for homeowners with equity. You’re borrowing against your home at rates significantly lower than personal loans or credit cards — typically in the 8-10% range versus 12-15%+ for unsecured loans. Better yet, the interest may be tax-deductible since you’re using the funds for a home improvement.
HELOCs also offer flexibility: you can draw what you need for the installation and pay it down as your electricity savings accumulate. If you’re in a state with strong incentives like New York or New Jersey, your SREC payments or tax credit refunds can go directly toward paying down the balance.
Compare HELOC vs. home equity loan vs. cash-out refinance to see which option fits your situation.
Home Equity Loan
If you prefer predictable payments over flexibility, a home equity loan gives you a lump sum at a fixed rate. You’ll know exactly what you’re paying each month for the life of the loan. Like HELOCs, interest may be tax-deductible for home improvements, and rates are lower than unsecured options.
Cash-Out Refinance
A cash-out refi replaces your existing mortgage with a larger one, giving you the difference in cash. This only makes sense if current mortgage rates are close to or below your existing rate — otherwise, you’re paying more interest on your entire mortgage balance, not just the solar portion. For most homeowners who locked in low rates before 2022, this isn’t the right move in today’s rate environment.
Solar Loans
Many solar installers offer financing through partner lenders. These are essentially personal loans marketed for solar purchases. Rates vary widely — some promotional offers start low but adjust upward, so read the fine print. Compare any installer-offered financing against a HELOC or home equity loan to make sure you’re getting the best deal.
Personal Loans
Unsecured personal loans don’t require home equity, but you’ll pay for that convenience with higher interest rates (often 12-20%). This option makes sense if you have limited equity, don’t want to use your home as collateral, or need a faster closing process. Just run the numbers — higher financing costs can eat into your long-term solar savings.
Third-Party Owned Solar: An Alternative Path
With the federal residential credit gone, homeowners should know that third-party ownership models — solar leases and power purchase agreements (PPAs) — still benefit from federal tax incentives through 2027.
Here’s how it works: when you lease solar panels or sign a PPA, a solar company owns the system installed on your roof. As the owner, the company can claim the business investment tax credit (Section 48E). Some of that value may be passed on to you through lower monthly payments or electricity rates.
According to Solar.com, third-party owned options may now offer better Day 1 savings than purchasing in states without strong state incentives. Prepaid leases and PPAs, in particular, can provide a path to eventual ownership after six years while benefiting from the tax credit during the financing period.
The tradeoffs: you won’t own the system (at least initially), you typically can’t claim state incentives directly, and long-term savings may be lower than ownership. But in states with weak state incentives, this may be your best path to federal support.
Frequently Asked Questions
No, not for homeowner-owned residential systems. The 30% federal residential clean energy credit (Section 25D) ended December 31, 2025. However, if you lease or sign a power purchase agreement, the solar company owning the system can still claim business credits through 2027. Systems installed before the deadline remain eligible for the credit — there’s no retroactive clawback.
New York offers the most comprehensive incentive package: a 25% state tax credit (up to $5,000), NY-Sun rebates, sales tax exemption, property tax exemption, and strong net metering. New York City residents get additional property tax abatements worth up to 30% of system cost. New Jersey is a close second thanks to its SREC-II program, which pays $85 per megawatt-hour for 15 years.
Yes, in most cases. Solar panel costs have dropped significantly over the past decade, and electricity rates continue to rise. In states with strong state incentives (like New York, New Jersey, or Massachusetts), incentives can still cover 20-50% of system costs. Even in states with minimal incentives, solar typically pays for itself within 6-10 years through electricity savings, with 15+ years of additional free electricity afterward.
You personally won’t claim the tax credit, but the company that owns the leased system can claim business credits. Some of that value may be passed on to you through lower lease payments. In New York, you can also claim the 25% state tax credit on your annual lease payments, up to the $5,000 lifetime maximum.
A rebate is an upfront cash payment that reduces your purchase price immediately. A tax credit reduces the amount of taxes you owe when you file your return. If a tax credit exceeds your tax liability, most state credits (like New York’s) can be carried forward to future years, but you won’t receive cash back directly.
In 34 states, including all the top 10 listed above, solar installations are exempt from property tax assessments. This means your property value may increase, but your property taxes won’t go up as a result of the solar installation.
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