Federal Solar Tax Credits and Incentives (2026)

The federal solar incentive landscape changed dramatically in 2025. The One Big Beautiful Bill Act eliminated the residential tax credit and set hard construction deadlines for commercial projects. This page covers every active federal program as of June 2026, with primary source citations throughout.

Recent development

Court ruling restores 5% Safe Harbor — June 6, 2026

A federal district court vacated IRS Notice 2025-42 on June 6, 2026, restoring the 5% Safe Harbor as a valid pathway for commercial solar projects to establish a construction start before the July 4, 2026 deadline. Projects relying on this ruling face appellate risk — consult tax counsel before relying solely on the 5% Safe Harbor. (Oregon Environmental Council v. IRS, Civil Action No. 2025-4400, U.S. District Court for the District of Columbia.)

Source

Federal commercial solar ITC — construction must begin by July 4, 2026

Section 48E requires construction to begin by July 4, 2026 for projects to maintain full eligibility. Projects that miss this date must be fully placed in service by December 31, 2027 to qualify for any credit. For most commercial installations, that 18-month window is not realistic. Commercial customers currently scoping a solar project should treat this as the primary financial deadline in the deal.

Federal programs

Section 48E — Clean Electricity Investment Tax Credit (Commercial ITC)

Commercial

Value: Base rate: 6%. Full rate: 30% with Prevailing Wage and Apprenticeship (PWA) compliance, or for projects under 1 MW AC output. Domestic content bonus: +10% (to 40%) with PWA. Energy community bonus: +10% with PWA. Low-income community allocation: +10% or +20% depending on category. Maximum combined credit: up to 70% for fully qualified projects.
Eligibility: Construction must begin by July 4, 2026 OR project must be placed in service by December 31, 2027. Projects missing both deadlines receive 0% credit. FEOC rules apply: projects beginning construction in 2026 are ineligible if more than 40% of total direct manufactured product costs come from Prohibited Foreign Entities (China, Russia, Iran, North Korea). Threshold escalates: 45% in 2027, 50% in 2028.
Deadline: July 4, 2026 (construction start) or December 31, 2027 (placed in service)
Notes: Direct Pay (Section 6417) allows tax-exempt entities, nonprofits, tribal governments, and municipalities to receive the credit as a direct cash refund. Transferability (Section 6418) allows for-profit developers to sell credits to third parties for cash. Statute: OBBBA P.L. 119-21.

IRS / U.S. TreasurySource

Section 48E — Energy Storage (Standalone Battery)

Both

Value: Base rate: 6%. Full rate: 30% with PWA compliance. Domestic content and energy community adders available. Standalone storage is expressly excepted from the solar/wind December 31, 2027 cliff. Full credit rate available through applicable year 2032. Phasedown begins 2033.
Eligibility: Standalone battery storage or solar-paired storage. NOT subject to the July 4, 2026 construction start deadline or the December 31, 2027 placed-in-service cliff. FEOC rules apply with a more favorable threshold: 55% PFE-cost ceiling for projects beginning construction in 2026.
Notes: Statutory basis: OBBBA Section 70513(a)(C) expressly excepts energy storage technology from the wind/solar termination rule. Full credit through applicable year 2032 per Section 70512.

IRS / U.S. TreasurySource

Section 45Y — Clean Electricity Production Tax Credit (PTC)

Commercial

Value: Per-kWh credit over a 10-year production period from placed-in-service date. Base rate approximately 0.55 cents/kWh; approximately 2.75 cents/kWh with full PWA compliance. Exact 2026 inflation-adjusted rate pending IRS publication.
Eligibility: Same construction start and placed-in-service deadlines as Section 48E. Same FEOC rules apply. Generally superior to ITC for utility-scale projects with high capacity factors where 10 years of cumulative production exceeds 30% of upfront cost.
Deadline: July 4, 2026 (construction start) or December 31, 2027 (placed in service)

IRS / U.S. TreasurySource

Section 25D — Residential Clean Energy Credit

Residential

Value: Terminated. No credit available for systems installed after December 31, 2025.
Eligibility: Homeowners who installed on or before December 31, 2025 may carry forward unused credits. New purchases in 2026 do not qualify. Third-party owned systems (leases and PPAs) remain eligible via the system owner's Section 48E commercial ITC claim.
Notes: Terminated by OBBBA (P.L. 119-21, signed July 4, 2025) for expenditures after December 31, 2025. Statute: IRC Section 25D.

IRSSource

MACRS Bonus Depreciation

Commercial

Value: 100% bonus depreciation permanently restored for qualifying business property placed in service on or after January 19, 2025. Solar energy property reclassified from 5-year to 20-year MACRS (OBBBA Section 70509), but 100% bonus depreciation makes the class life irrelevant for most projects — full basis expensed in Year 1. ITC basis reduction: depreciable basis reduced by 50% of the claimed ITC percentage.
Eligibility: Commercial solar projects. The 20-year MACRS reclassification applies to property where construction begins after December 31, 2024. Class life matters only for taxpayers who opt out of bonus depreciation or use specific tax equity structures.
Notes: Statutory basis: OBBBA Section 70301 (bonus depreciation) and Section 70509 (MACRS reclassification). Confirmed on Congress.gov primary source.

IRSSource

Direct Pay — Section 6417

Both

Value: Tax-exempt entities receive the full ITC or PTC value as a direct cash refund from the IRS instead of a tax credit offset.
Eligibility: Tax-exempt 501(c) organizations, educational and religious institutions, tribal governments, Alaska Native Corporations, municipal and local governments, public school districts, and rural electric cooperatives. Subject to the same solar construction start and placed-in-service deadlines as Section 48E.
Notes: Preserved by OBBBA. Confirmed on IRS.gov.

IRSSource

Transferability — Section 6418

Commercial

Value: For-profit developers can sell ITC or PTC credits to unrelated third-party taxpayers for cash. Transaction is non-taxable to the seller.
Eligibility: For-profit commercial solar developers. Credits cannot be resold by the purchasing entity. OBBBA extended the audit statute of limitations to 6 years and added penalties for FEOC certification errors.
Notes: Preserved by OBBBA. Confirmed on IRS.gov.

IRSSource

Federal rules for repowering and replacement systems

ITC recapture window

The federal ITC recapture window is 5 years from placed-in-service date, declining 20% per year (IRC Section 50(a)). Systems installed in 2015 or earlier have fully lapsed their recapture window as of 2020. Removing a 2009-2015 system does not trigger federal ITC recapture. Confirmed: IRS Forms 3468 and 4255.

The 80/20 rule

Partial repowers must satisfy the IRS 80/20 Rule to qualify for a fresh ITC as a new project. The fair market value of retained used components must not exceed 20% of the total repowered system value. A full decommission with all-new equipment bypasses this test entirely and qualifies as a new installation.

Why full removal is required

Full removal of all legacy equipment — panels, racking, wiring, and mounting hardware — is required to satisfy the all-new equipment tests in both NJ ADI and MA SMART 3.0. Leaving any legacy infrastructure in place risks disqualifying the new installation from state incentive programs and triggering the 80/20 federal audit. Partial removal is not sufficient.

State program implications

NJ ADI: the prior system's SREC registration must be terminated in PJM GATS and a new interconnection agreement executed before ADI registration. MA SMART 3.0: a new or formally amended interconnection service agreement and dedicated production meter are required. Contact NJBPU or DOER directly to confirm current administrative requirements before proceeding.

Last reviewed: June 8, 2026

Disclaimer

This page is for informational purposes only and does not constitute legal or tax advice. Federal incentive programs, credit rates, and eligibility rules changed significantly in 2025 and may change further. The court ruling on IRS Notice 2025-42 is subject to appeal. Verify current program status with a qualified tax attorney or solar finance professional before making investment decisions.

Planning a commercial solar project in New Jersey or Massachusetts?

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