Federal Solar Tax Credit in 2026: SC Guide

There is no new federal solar tax credit in 2026 for a homeowner installation completed in 2026. Current Internal Revenue Code Section 25D ends the Residential Clean Energy Credit for expenditures made after December 31, 2025. The IRS explains that prepaying in 2025 does not rescue a project whose original installation finishes after that date.

Two different situations are often confused with a new 2026 credit. A taxpayer may be filing a 2025 return during calendar year 2026, or may have an unused qualifying Section 25D credit carried forward from an earlier year. Neither makes a new 2026 installation eligible.

South Carolina has a separate solar income-tax credit, but it is not an automatic 25% discount. Ownership, qualifying costs, completed installation, certification, state tax liability, annual limits, and filing requirements all matter. This guide explains what to verify before accepting any “after incentives” number in a 2026 solar proposal.

This is general educational information based on sources reviewed August 10, 2026. It is not tax, legal, or accounting advice. A qualified tax professional should apply current law to your return, ownership structure, contract, and project dates.

Federal solar tax credit in 2026: the short decision table

Your situation	Federal homeowner Section 25D position under current guidance	What to do next
New solar or battery installation completed in 2026	No new Section 25D credit	Recalculate the proposal without a 30% federal homeowner credit
You paid or signed in 2025, but installation completed in 2026	Prepayment or contract date does not preserve the credit	Ask a tax professional to review the actual completion facts and records
Qualifying installation completed in 2025	It may belong on the 2025 return, normally filed in 2026	Review the 2025 Form 5695 rules and evidence with your preparer
Unused qualifying Section 25D amount from a prior year	A carryforward may still reduce federal tax in 2026	Preserve the prior forms and calculate the carryforward with your preparer
Cash or loan purchase completed in 2026	Ownership does not override the federal termination	Compare project economics without a new homeowner federal credit
Lease or power-purchase agreement	The homeowner does not own the system and should not claim an owner credit	Compare the signed payment and transfer terms; do not assume the provider’s tax result
Qualifying owner-purchased South Carolina project	A separate state credit may be available, subject to its own rules	Review S.C. Code §12-6-3587, SCDOR guidance, and Schedule TC-38

The practical answer is simple: if a 2026 homeowner proposal subtracts 30% from the contract price, loan balance, payment, or payback calculation as a new federal credit, ask the seller to remove that line and rerun every figure.

What federal law actually changed

The former homeowner incentive is the Residential Clean Energy Credit under Internal Revenue Code Section 25D. It covered qualifying residential clean-energy expenditures, including solar electric property and, beginning in 2023, qualifying battery storage. The percentage for qualifying property installed from 2022 through 2025 was 30%.

Public Law 119-21 accelerated the end date. The current U.S. Code text for Section 25D(h) says the credit does not apply to expenditures made after December 31, 2025. The IRS Residential Clean Energy Credit page, last reviewed July 4, 2026, expresses the consumer-facing result this way: the credit is not available for property placed in service after December 31, 2025.

Those formulations should not be collapsed into “the day you paid.” Section 25D has a timing rule for when an expenditure is treated as made.

Paying in 2025 did not lock in the credit

The IRS FAQ for the Public Law 119-21 changes directly addresses a taxpayer who paid on or before December 31, 2025 for property installed later. Its answer is no: Section 25D(e)(8)(A) treats the expenditure as made when the item’s original installation is completed. If completion occurs after December 31, 2025, the expenditure is treated as made after the deadline.

That means none of these facts, standing alone, establishes a 2025 credit:

• signing a proposal or finance agreement in 2025;
• paying a deposit in 2025;
• paying the seller in full in 2025;
• having equipment delivered in 2025;
• receiving a permit in 2025; or
• having a lender fund the transaction in 2025.

The original installation must satisfy the governing timing rule. A salesperson’s invoice date or description of “substantial completion” is not a tax determination.

Construction or reconstruction has a separate original-use rule

The IRS law-change FAQ also explains Section 25D(e)(8)(B). When an expenditure is connected with construction or reconstruction of a structure, it is treated as made when the taxpayer’s original use of the constructed or reconstructed structure begins. A newly built home that the taxpayer first uses after the cutoff is therefore not saved by an earlier equipment payment.

This distinction matters for a solar project incorporated into new-home construction. Do not assume that the solar contractor’s work date alone controls when the broader construction rule applies. Have a qualified professional examine the home-construction facts.

Installation, inspection, permission to operate, and “placed in service” are not interchangeable sales milestones

The current IRS website uses “installed” and “placed in service,” while the statute and law-change FAQ focus on when the expenditure is treated as made and when original installation is completed. Local inspection and utility permission to operate are important project milestones, but the IRS FAQ does not say that signing, paying, inspection, or utility approval automatically answers every boundary case.

If a system was physically installed near the end of 2025 but inspection, correction, interconnection, or permission to operate occurred in 2026, preserve the full timeline and seek project-specific tax advice. Relevant evidence may include the contract, invoices, payment records, installation logs, permit inspections, commissioning records, interconnection documents, and utility correspondence. Sunburst can explain project milestones; it cannot decide the tax year for a disputed set of facts.

A carryforward into 2026 is not a new 2026 credit

The federal termination stops new Section 25D expenditures after 2025. It does not mean every valid credit earned earlier vanishes on January 1, 2026.

The 2025 Instructions for Form 5695 state that the form is also used to carry the unused portion of the Residential Clean Energy Credit to 2026. The 2025 Form 5695 includes a specific “credit carryforward to 2026” line. That is a remaining amount from a qualifying earlier expenditure, not a new credit generated by 2026 work.

Keep three calendar concepts separate:

1. Installation or expenditure tax year: the year in which the qualifying federal expenditure is treated as made.
2. Return filing date: a 2025 federal return is usually prepared and filed during calendar year 2026.
3. Carryforward year: an unused allowed amount from an earlier return may be applied in a later year, subject to the current form, instructions, tax liability, and the taxpayer’s facts.

For example, someone who completed a qualifying installation in 2025 may claim it on the 2025 return filed in 2026 if all requirements are met. Calling that a “2026 solar credit” is misleading because the credit belongs to tax year 2025. Someone with an unused amount properly carried from that return may use the carryforward mechanism, but a different system completed in 2026 does not generate another Section 25D amount.

The IRS’s timing FAQ for residential clean-energy credits also discusses carrying unused credit forward and the general possibility of amending a prior return within the applicable time limit. Whether an earlier project qualified, whether the credit was properly computed, and whether an amended return is timely are tax-preparer questions.

How cash, loans, leases, and PPAs affect the answer

Payment method and ownership are related, but they are not the same question. First determine who owns the equipment and who is obligated under the contract. Then apply the correct federal or state rule.

Structure	Who generally owns the equipment?	New federal homeowner Section 25D for 2026 completion	South Carolina TC-38 starting point
Cash purchase	Homeowner	No	May qualify if the taxpayer, facility, system, costs, completion, certification, and liability rules are met
Solar purchase loan	Homeowner/borrower, subject to contract and security terms	No	SCDOR says a financed purchaser contractually obligated for full cost can qualify, excluding financing expenses
Equipment lease	Third-party lessor	Homeowner does not claim an owner credit	SCDOR says the lessee does not qualify; it also says the lessor generally does not qualify because it does not own the facility
PPA	Provider generally owns equipment; homeowner buys energy under contract	Homeowner does not claim an owner credit	Do not assume eligibility; ownership of both system and facility, purchase, and specific contract facts require review

Cash and owner financing do not revive federal Section 25D

A cash buyer and a borrower may both own their systems, but a system completed in 2026 still falls after the federal homeowner deadline. Financing the purchase does not shift the installation back into 2025, and paying cash does not create an exception.

For South Carolina’s separate credit, SCDOR Revenue Ruling 24-2 says a taxpayer financing the purchase can claim qualifying purchase and installation costs when installation is completed if the taxpayer is contractually obligated to pay the full system cost. It excludes interest, insurance, origination fees, extended warranties, and other financing expenses from eligible cost.

When comparing the two owner-purchase paths, use the cash-versus-solar-loan framework to separate system price, amount financed, finance charges, total payments, and conditional tax benefits.

A lease or PPA customer should not count an owner credit as personal money

The Federal Trade Commission’s homeowner solar guide explains that lease and PPA customers do not own the system and are not eligible for owner tax credits and financial incentives; those belong to the system owner where that owner actually qualifies. A 2026 proposal should not tell a lessee or PPA customer that a federal homeowner credit will arrive on the customer’s tax return.

Do not take the next leap and assume a third-party provider automatically receives a 30% federal business credit or passes it through dollar for dollar. The IRS Clean Electricity Investment Credit page describes Section 48E as a separate business-side credit with its own taxpayer, facility, labor, filing, and other requirements. The provider’s tax position is not the homeowner’s Section 25D credit and should not be treated as an assured customer price reduction.

Compare a lease or PPA using its signed payment schedule, escalation, service obligations, transfer terms, buyout or end-of-term options, and remaining utility charges. The solar loan-versus-lease guide helps keep ownership and contract costs separate from tax assumptions.

What South Carolina’s 25% solar credit really means

As of August 10, 2026, South Carolina Code Section 12-6-3587 still provides a separate income-tax credit for qualifying solar energy systems. The current South Carolina statute sets the credit at 25% of qualifying costs incurred by the taxpayer to purchase and install the system in or on a South Carolina facility owned by that taxpayer.

That percentage is the starting calculation, not the amount necessarily usable in one year. The credit cannot be claimed before installation is complete. Under the statute, SCDOR’s current credit listing, Revenue Ruling 24-2, and Schedule TC-38, annual use is limited to the lesser of:

• $3,500 for each facility; or
• 50% of the taxpayer’s South Carolina income-tax liability for that year.

The credit is nonrefundable. It reduces eligible South Carolina income-tax liability but not below zero. Eligible unused credit may be carried forward for up to 10 years and remains subject to the annual limits in a carryforward year.

Current SCDOR guidance does not say every homeowner receives 25% in cash, and the current statute, form, and ruling do not state a “$35,000 lifetime maximum.” Do not use that marketing shorthand as a substitute for the actual credit calculation and carryforward rules.

A calculation example, not a tax estimate

Assume only for illustration that a tax professional confirms $20,000 of costs qualify. The starting state-credit calculation would be:

$20,000 × 25% = $5,000 total calculated credit

Now assume the taxpayer’s South Carolina income-tax liability before applying this credit is $4,000. Half of that liability is $2,000. The lesser of $3,500 and $2,000 is $2,000, so no more than $2,000 would be used that year under those assumptions. The remaining $3,000 would be evaluated as a carryforward on later returns.

Change the qualifying cost, facility count, tax liability, other credits, ownership, or tax facts and the result can change. This example does not show what any reader will receive, and it should not be inserted into a proposal as a promised first-year payment.

State eligibility is a checklist, not a slogan

Before including a South Carolina credit in your decision, have the appropriate professional confirm:

1. the taxpayer owns the South Carolina facility where the system is installed;
2. the taxpayer purchased and owns the qualifying solar energy system;
3. original installation is complete in the claimed tax year;
4. the system and equipment satisfy current certification and licensing requirements;
5. the claimed cost includes only eligible purchase and installation items;
6. any rebate or purchase-price adjustment is treated correctly;
7. the taxpayer has South Carolina income-tax liability against which a nonrefundable credit can be used;
8. the annual per-facility and 50%-of-liability limits are calculated correctly; and
9. Schedule TC-38 and supporting records are completed and retained.

SCDOR says a utility interconnection agreement can serve as certification that a grid-connected PV system was reviewed by an appropriate entity. For a system not connected to the grid, its ruling describes a separate certification route involving safety standards, permits, and final inspection. Keep the current certificate and interconnection requirements with the tax file.

Which South Carolina project costs may qualify

Revenue Ruling 24-2 provides a more useful cost audit than a generic “25% of system cost” statement. It identifies common included and excluded categories but notes that technology continues to change.

Cost or equipment	Current SCDOR treatment in Revenue Ruling 24-2	Buyer check
Solar panels, inverter, mounting, wiring, and direct system controls	Listed within qualifying equipment or balance-of-system costs	Match invoice items to the installed system
Preparation, assembly, and installation labor	Included	Separate solar labor from unrelated work
Permitting, inspection, and developer fees	Included when tied to the eligible system	Retain itemized invoices and permits
Sales tax paid on eligible expenses	Included in eligible cost basis	Do not confuse this with a general sales-tax exemption
Solar-connected battery storage	Guidance lists solar battery storage connected with the system as qualifying	Confirm configuration and current SCDOR treatment
Standalone non-solar battery storage	Listed as not qualifying for this state credit	Do not apply 25% automatically to a 2026 standalone battery
Ordinary roof, walls, land, or structural elements	Excluded	Keep roof and structural work separate
Ordinary electric-panel upgrade	Listed as not qualifying	Do not include simply because solar required the project
Interest, insurance, origination fees, financing costs, or extended warranties	Excluded	Reconcile cash system cost with amount financed

This state list is separate from the now-ended federal homeowner credit. A cost that qualified under a prior federal rule does not automatically qualify in South Carolina, and vice versa. SCDOR specifically warns that federal and state requirements differ.

Correct the property-tax and sales-tax claims

South Carolina does provide property-tax treatment for certain small renewable-energy property, but the law is more specific than “solar never raises property tax.” The current S.C. Code §12-37-220(B)(53) exempts qualifying renewable-energy resource property with a nameplate capacity of, and operating at, no greater than 20 kW AC. The definition includes certain components that enhance operation or are required for safety, performance, interconnection, and reliability.

The current SCDOR PT-401-I instructions describe the exemption for solar panels on residential rooftops, require the system to be installed and operating, state the 20 kW limit, and list application documentation. A homeowner should verify the latest process and the property’s facts with SCDOR and the county assessor rather than assume the exemption is automatic or unlimited.

Sales tax is different. The current South Carolina Sales and Use Tax Act does not list a general residential solar-equipment exemption. Consistently, Revenue Ruling 24-2 says sales tax paid on otherwise eligible solar expenses can be included when calculating the separate state income-tax credit.

Therefore, do not subtract a “South Carolina solar sales-tax exemption” from a residential quote unless a qualified adviser identifies the enacted provision and explains why it applies to that transaction. Ask the seller whether applicable tax is included in the gross contract price, then keep it visible in the price comparison.

Audit a 2026 proposal without the expired 30% assumption

A tax-credit error can affect much more than the “incentives” box. It may also change the advertised net price, assumed loan prepayment, monthly payment after recast, payback period, return calculation, and home-sale plan.

Ask for a corrected proposal that shows these layers separately:

Layer	What should be visible
Contract price	Gross cash price for the defined system and work, before conditional incentives
Financing	Amount financed, APR, finance charge, payment schedule, total payments, prepayment terms, and excluded fees
Federal homeowner tax	$0 new Section 25D credit for a project completed in 2026 under current law
Prior federal carryforward	Kept outside the new project price and included only if the taxpayer’s records and preparer support it
South Carolina credit	Qualifying-cost assumption, ownership, completion, annual cap, liability limit, and expected carryforward schedule
Property tax	20 kW AC threshold and current application/fact review, not an unlimited promise
Sales tax	Included where applicable unless a specific current exemption is documented
Energy economics	Utility, usage, production, export-credit, escalation, fixed-charge, maintenance, and financing assumptions

Then review the financing and incentives overview, use the solar cost calculator, and check the South Carolina incentive guide as decision-support tools—not tax-return calculators. Your serving utility, roof, household usage, system design, export treatment, financing, and usable state credit determine whether the project still works.

Questions to put in writing

• Does this proposal subtract a federal Section 25D credit from any price or payment?
• What date and project milestone does the tax assumption use?
• What is the gross cash price before every incentive?
• Which party owns the system under each proposed payment structure?
• Which South Carolina costs are included in the 25% calculation, and which are excluded?
• Does the illustration apply the $3,500 annual facility limit and 50%-of-tax-liability limit?
• Does it assume the full state credit arrives in year one?
• Is applicable sales tax included in the contract price?
• Does the property-tax statement account for the 20 kW AC threshold and application process?
• Which figures are contract terms, which are estimates, and which require tax-professional confirmation?

Do not accept “your accountant will sort it out later” as a reason to sign a proposal whose payment or economics already depend on an unsupported credit.

Who should proceed, pause, or get tax review first

Proceed to a site-specific solar assessment when the project remains financially acceptable without a new federal homeowner credit, the gross price and ownership structure are clear, and the state-credit treatment will be verified independently. A strong 2026 project should stand on its roof, usage, utility program, system design, contract cost, and conservative assumptions.

Pause when:

• the seller will not remove a new 30% federal homeowner credit from a 2026 model;
• the loan payment assumes a credit-sized prepayment you will not receive;
• the seller calls the South Carolina credit an automatic refund;
• the system, facility, or contract ownership is unclear;
• roof, electrical, battery, or financing costs are bundled so eligible state basis cannot be reviewed;
• a sales-tax exemption is claimed without a current enacted citation;
• a property-tax promise ignores the capacity threshold or administrative process; or
• the project only works under unsupported savings, production, utility-rate, or tax promises.

Get tax review before relying on any amount when a 2025 project crossed into 2026; the system is part of new construction; business use, rental use, multiple owners, a trust, or multiple facilities are involved; a lease or PPA is being compared; a rebate affects cost basis; an earlier federal carryforward exists; or South Carolina tax liability may be too low to use much of the state credit.

If you want a proposal modeled from the gross price and your actual home—not the expired 30% headline—review Sunburst’s residential solar process and request a free solar assessment. We can make the system, price, utility, and project assumptions visible; your tax professional should decide what belongs on a return.

Keep a clean project and tax document file

Before filing or asking an adviser to review the project, gather:

• signed purchase, loan, lease, or PPA agreements and all addenda;
• itemized cash price, final invoice, change orders, and payment records;
• equipment list and system size in both kW DC and kW AC;
• installation-completion, commissioning, inspection, and permit records;
• utility interconnection agreement and permission-to-operate correspondence;
• any off-grid certification required by the South Carolina Energy Office;
• rebate, grant, insurance, or other incentive documentation;
• South Carolina facility-ownership records;
• prior Forms 5695 and federal returns supporting a carryforward;
• Schedule TC-38 and state returns supporting the South Carolina calculation; and
• written explanation of every tax assumption used in the proposal.

Documentation does not create eligibility, but it lets the person responsible for the return apply the rules to evidence instead of a sales summary.

Getting a 2026-accurate proposal

Sunburst writes proposals against the rules in force for your filing situation and leaves the tax determination to your preparer. Practically, that means the cash price and scope come first, any South Carolina credit is described as a taxpayer schedule with its own eligibility and carryforward rules rather than as a discount, and we supply the project documentation — equipment, costs, placed-in-service evidence — that your CPA will ask for.

If a competing quote presents a large “after incentives” number as the price, treat that as the first thing to verify. Our South Carolina solar incentives guide and financing and incentives page explain the mechanics in plain language, and solar incentives by city covers local specifics.

Read next: payback arithmetic, is solar worth it in 2026 and how to compare quotes. What is left after the federal credit expired depends on who bills you: see solar incentives in Charleston or Myrtle Beach, where Santee Cooper runs the only real rebate we work with. Book a free assessment for a proposal built on current rules.

Frequently asked questions

Is there a 30% federal solar tax credit for panels installed in 2026?

No. As of August 10, 2026, Section 25D does not allow a new homeowner credit for expenditures after December 31, 2025, and the IRS says property placed in service after that date is not eligible. Ask for any 2026 proposal using 30% to be recalculated.

I paid for solar in 2025 but installation finished in 2026. Can I claim it?

Prepayment alone does not preserve the credit. The IRS explains that Section 25D generally treats the expenditure as made when original installation is completed. A construction or reconstruction expenditure follows an original-use rule. Have a qualified professional review the exact dates and facts.

Can I use an older federal solar credit carryforward in 2026?

Potentially. The 2025 Form 5695 includes a line for carrying an unused qualifying amount to 2026. That is an earlier credit constrained by the current form, instructions, liability, and your records; it is not a new credit for a 2026 installation.

Does a solar loan make a 2026 system federally eligible?

No. A loan may fund an owner purchase, but it does not change the federal end date. South Carolina separately allows a qualifying financed purchase when the taxpayer is contractually obligated for full cost, although financing expenses are excluded and all other state requirements still apply.

Can a South Carolina homeowner automatically claim 25% of the solar price?

No. The 25% is a starting calculation for qualifying purchase and installation costs. Facility and system ownership, completed installation, certification, eligible expenses, state tax liability, the $3,500 per-facility annual limit, the 50%-of-liability limit, and Schedule TC-38 all matter.

Is the South Carolina solar credit capped at $35,000 for life?

The current statute, SCDOR Revenue Ruling 24-2, and Schedule TC-38 do not state a $35,000 lifetime maximum. They state a 25% calculation, annual use limits, and an up-to-10-year carryforward. Use the current official calculation rather than that shorthand.

Does South Carolina exempt residential solar from sales tax?

Do not assume so. The current state Sales and Use Tax Act does not list a general residential solar-equipment exemption, and SCDOR’s solar credit ruling includes sales tax paid on eligible expenses in the state income-credit basis. Seek a specific current citation before removing tax from a quote.

Will rooftop solar increase my South Carolina property tax?

State law exempts qualifying renewable-energy resource property operating at no more than 20 kW AC. SCDOR’s current individual application instructions describe qualifying operating rooftop residential systems and required records. Confirm your system and filing process with SCDOR and the county assessor.

Can I claim homeowner tax credits on a lease or PPA?

Generally, no. A lease or PPA customer does not own the equipment and should not claim an owner incentive. The provider’s possible business tax treatment is separate, fact-dependent, and not an assured homeowner discount. Compare the signed contract itself.

Sources and methodology

This article was researched and materially updated on August 10, 2026. We checked the live Sunburst sitemap and canonical page, current search results, common buyer objections, the current Internal Revenue Code, IRS guidance, South Carolina statutes, SCDOR rulings and forms, and related local ownership and financing content. Tax rules can change; the linked official sources and a qualified adviser should control a project-specific decision.

• Internal Revenue Service, Residential Clean Energy Credit — current homeowner Section 25D end date, carryforward overview, eligible-property context, and Form 5695 link; updated July 4, 2026; accessed August 10, 2026.
• Internal Revenue Service, Public Law 119-21 energy-credit FAQ — expenditure deadline, prepayment, original-installation completion, and construction/reconstruction timing; accessed August 10, 2026.
• Office of the Law Revision Counsel, 26 U.S.C. §25D — current statutory termination and timing text; accessed August 10, 2026.
• IRS, 2025 Instructions for Form 5695 — prior-year claim and carryforward mechanics, completion timing, and eligible-cost context; accessed August 10, 2026.
• South Carolina Code §12-6-3587 — state credit percentage, ownership, completion, annual limits, and carryforward; accessed August 10, 2026.
• South Carolina Department of Revenue, Revenue Ruling 24-2 — qualifying systems and costs, certification, ownership, leases, financed purchases, annual limits, carryforward, and filing; accessed August 10, 2026.
• South Carolina Department of Revenue, Schedule TC-38 — current posted state calculation and claim form; accessed August 10, 2026.
• South Carolina Code §12-37-220(B)(53) and SCDOR PT-401-I — small renewable-property exemption and residential rooftop application guidance; accessed August 10, 2026.
• South Carolina Sales and Use Tax Act — current statutory exemptions review; accessed August 10, 2026.
• Federal Trade Commission, Solar Power for Your Home — purchase, lease, PPA, ownership, and consumer contract distinctions; accessed August 10, 2026.