Can I deduct solar panels?

Updated August 05, 2026 by Steve Banner, EA, MBA

If you’ve priced out solar lately, you already know the math can get confusing. The good news is there are still meaningful tax incentives for solar. The catch: Which incentive you get depends heavily on who owns the system and where it’s used. 

In this blog, we’ll lay out a guide to help you identify the most common federal tax breaks connected to solar—plus a couple of examples so you can see how the rules play out in real life. (As always, tax law has exceptions, so treat this as general info and check your specific situation.) 

 

1) Home Solar in 2026: Is there still a federal credit? 

For homeowners, the big headline is that the federal Residential Clean Energy Credit (Internal Revenue Code section 25D) is generally available for qualifying residential solar and other clean-energy property placed in service from 2022 through December 31, 2025. That means a homeowner-owned solar system installed (and placed in service) in 2026 is generally not eligible for this particular federal credit under the IRS timeline. 

However, if you installed it in 2025 (or earlier within the eligible window) and couldn’t use the whole credit because your tax liability was too low, you may be able to carry the unused portion forward to future years. 
 

What “placed in service” means (in plain English) 

Think of “placed in service” as: installed, turned on, and ready to do its job. Signing a contract or ordering equipment is not the same thing. 
 

Homeowner quick-check list 

• You generally must own the system (cash or loan). Leases/PPAs usually shift the tax benefit to the company that owns the panels. 
• The home must be located in the United States. 
• The credit is nonrefundable (or, in other words, it can reduce your tax to zero, but it doesn’t automatically create a bigger refund beyond your tax liability). 
• Unused credit may be carried forward (if you’re eligible for the credit in the first place). 

2) Business solar: the simple version 

If a business buys solar panels for its building, farm, or office, it may get a federal tax credit. A tax credit helps lower the amount of tax the business owes. But timing matters a lot. For many business solar projects, the key federal deadline is whether construction begins on or before July 4, 2026. If construction begins after that date, the project generally must be placed in service by December 31, 2027, to qualify. Projects that begin construction on or before July 4, 2026, may still qualify under different timing rules, and labor-related requirements can still affect whether the credit is 6% or up to 30%. 

 

What this means

• A business can sometimes get a federal tax credit for installing solar. 
• The usual starting credit is 6%, but it may go up to 30% if the project follows certain labor rules. 
• For many solar projects, the big date is July 4, 2026; starting construction after that date can make the credit much harder to keep. 
• If construction starts after July 4, 2026, the project generally must be up and running by December 31, 2027, to qualify. 
• If construction starts on or before July 4, 2026, the project may still qualify under continuity rules, so dates and documentation matter. 

3) Two examples (because tax rules love a good story) 

Example A: Larry the homeowner (installed in 2025) 

Larry installs a solar electric system on his Arizona home, and it’s placed in service in 2025. His total qualified cost is $20,000. Under the Residential Clean Energy Credit rules for the eligible window, the credit rate is 30%, so Larry’s potential federal credit is $6,000. If his total tax liability is only $4,000, he may use $4,000 this year and carry forward the remaining $2,000. 

 

Example B: Mike the business owner (placed in service in 2026) 

Mike installs solar on an Oregon dairy facility in 2026 to power equipment in his milking shed. Because this is business property, he’s generally looking at the business-side investment credit rules. Whether he qualifies now depends heavily on timing: If construction begins on or before July 4, 2026, he may still qualify under the applicable rules. If construction begins later, the project generally must be placed in service by December 31, 2027. If his project also meets the labor requirements, the credit may be up to 30% rather than the 6% base rate, and he’ll also look at depreciation rules for the equipment as part of the overall tax picture. 

 

4) “Deduction” vs. “credit”: the tiny words that make a big difference 

People often say “deduct,” but solar incentives are usually credits. Here’s the cheat sheet: 
 

• Tax credit: Reduces your tax bill dollar-for-dollar ($1 of credit can offset $1 of tax). 
• Tax deduction: Reduces your taxable income (the savings depend on your tax bracket). 

5) Friendly reminders before you run off into the sunshine 

• Keep documentation: Contracts, invoices, proof of payment, and the placed-in-service date. 
• Determine ownership: Who owns the system often determines who gets the credit. 
• State incentives still matter: Even if a federal credit is limited, state/local rebates and utility programs can be substantial (and they may affect how you calculate eligible costs). 

Bottom line: Solar can still come with tax perks, but in 2026, the homeowner story and the business story aren’t using the same script. If you’re not sure which rules apply, a quick review with a tax pro can help you capture what you’re entitled to—without accidentally claiming a credit that is no longer available.