Major Change for 2026
The federal 30% residential solar Investment Tax Credit (ITC) under Section 25D was eliminated by the One Big Beautiful Bill Act, signed into law in 2025. The credit expired December 31, 2025. Residential solar installations completed in 2026 and beyond do not qualify for the federal solar ITC.
The solar incentive landscape changed significantly heading into 2026. While the headline federal tax credit for residential solar is gone, several valuable incentives remain — including a new wrinkle for battery storage. Here's what Arizona homeowners need to know.
Federal Solar ITC — Eliminated
The residential clean energy credit under IRC Section 25D previously allowed homeowners to deduct 30% of their solar installation cost from federal income taxes. The One Big Beautiful Bill Act (OBBB), passed in 2025, repealed this credit effective December 31, 2025.
If your solar system was placed in service (installed, inspected, and operational) by December 31, 2025, you can still claim the credit on your 2025 tax return. Systems completed in 2026 or later are not eligible.
| Year Installed | Federal Solar ITC | Status |
|---|---|---|
| 2024 or earlier | 30% | Available (claim on that year's return) |
| 2025 | 30% | Available (if placed in service by Dec 31) |
| 2026+ | 0% | Eliminated by OBBB |
Battery Storage — Still Gets 30% Through 2032
Here's the important nuance: standalone battery storage systems still qualify for the 30% federal tax credit under Section 48E (the clean electricity investment credit for businesses) and through certain provisions that survived the OBBB. Battery storage was added as an eligible standalone technology in the Inflation Reduction Act, and this provision was not repealed.
This means if you install solar panels plus a battery in 2026, you can claim 30% of the battery cost (not the solar panel cost) on your federal taxes. A typical home battery system costs $12,000-$16,000, so the credit could be $3,600-$4,800. See our battery storage guide for full cost and sizing details.
Battery Storage Tax Credit Details
- • 30% of battery system cost (equipment + installation)
- • Available through at least 2032
- • Battery must be at least 3 kWh capacity
- • Can be added to existing solar or installed standalone
- • Claimed on IRS Form 5695
Arizona State Solar Tax Credit
Arizona offers its own state tax credit for residential solar under A.R.S. §43-1083. This credit is 25% of the installation cost, capped at $1,000. It's claimed on your Arizona state income tax return.
The state credit is modest but still valuable, and it was not affected by the federal changes. It's a state-level credit that exists independently of any federal program.
Arizona State Credit Quick Facts
- • 25% of solar installation cost
- • Maximum credit: $1,000
- • Must be your primary residence
- • Claimed on Arizona Form 310
- • Source: A.R.S. §43-1083
Property & Sales Tax Exemptions
Property Tax Exemption
Under A.R.S. §42-11054, solar energy devices are exempt from property tax assessment. Solar panels typically add $15,000-$20,000 to a home's market value, but this increase is not taxed.
Sales Tax Exemption
Arizona exempts solar energy equipment from the state's Transaction Privilege Tax (sales tax). On a $30,000 system, this saves you roughly $1,700-$2,500 depending on your city's combined tax rate.
Solar Leases & PPAs: Business ITC Still Available
While the residential ITC is gone, the business/commercial ITC under Section 48 still exists through at least 2027 (stepping down thereafter). Solar companies that offer leases or Power Purchase Agreements (PPAs) own the system themselves and can claim the business ITC.
This means lease and PPA pricing may remain competitive even without the residential credit, because the solar company captures the tax benefit and passes some savings to you through lower monthly payments.
Should You Lease or Buy in 2026?
Without the 30% residential ITC, the math shifts. Buying solar outright now has a longer payback period. Leases and PPAs let you benefit from solar savings with no upfront cost, and the company handles maintenance. The tradeoff: you don't own the system or the increased home value. Run both scenarios through our Gilbert or Buckeye calculator to compare.
2026 Arizona Solar Incentives Summary
| Incentive | Value | Status in 2026 |
|---|---|---|
| Federal Solar ITC (25D) | Was 30% | Eliminated |
| Battery Storage Credit | 30% of battery cost | Available through 2032 |
| AZ State Tax Credit | 25% up to $1,000 | Available |
| Property Tax Exemption | 100% of added value | Available |
| Sales Tax Exemption | ~$1,700-$2,500 saved | Available |
| Business ITC (Lease/PPA) | 30% (company claims) | Available through 2027 |
Is Solar Still Worth It in 2026 Without the Federal Credit?
Yes — but the economics have shifted. Without the 30% federal credit, a $30,000 system now costs $29,000 net (after only the $1,000 AZ state credit) instead of the ~$20,000 it would have cost in 2025. Payback periods are longer: roughly 11-14 years instead of 8-10.
However, solar panel costs continue to decline, electricity rates continue to rise (APS just raised rates 8.5%), and the 25-year savings still total $20,000-$40,000+ for most Arizona homes. Solar is a slower investment now, but still a positive one — especially as a hedge against future rate hikes.
Adding battery storage makes the math more attractive thanks to the surviving 30% battery credit, particularly for SRP customers who can use batteries to eliminate demand charges. Compare financing options in our 2026 financing guide.
Sources
- IRS — Residential Clean Energy Credit (Form 5695, Section 25D)
- One Big Beautiful Bill Act — Energy tax credit provisions
- Arizona Revised Statutes §43-1083 — Solar energy credit
- Arizona Revised Statutes §42-11054 — Property tax exemption
- DSIRE — Database of State Incentives for Renewables & Efficiency