For more than a decade, the federal Residential Clean Energy Credit (Section 25D) cut the cost of home solar by 30%. The 2025 budget law ended it early. According to the IRS, the credit is not available for property placed in service after December 31, 2025. For homeowners buying a system in 2026, payback math now has to stand on its own.
A worked example
Take a home that uses 900 kWh per month (10,800 kWh per year) and pays the 2026 US average residential rate of 18.2¢/kWh (EIA forecast).
| Step | Calculation | Result |
|---|---|---|
| System size for 100% offset | 10,800 kWh ÷ 1,350 kWh per kW per year | 8.0 kW |
| Installed cost | 8,000 W × $2.58/W | $20,640 |
| First-year savings | 10,800 kWh × $0.182 | $1,966 |
| Simple payback (no rate increases) | $20,640 ÷ $1,966 | about 10.5 years |
| Same system with the old 30% credit | $14,448 ÷ $1,966 | about 7.3 years |
The $2.58/W figure is the average marketplace quote reported by EnergySage for early 2026. Lawrence Berkeley National Lab’s broader data put the median installed price for 2024 systems near $4.0/W. At that price, payback in this example stretches past 16 years before rate increases. Get several quotes.
What still makes solar pay off
- High electricity rates. Payback scales almost directly with your rate. At 30¢/kWh, the example above pays back in about 6.4 years.
- Strong sun. Southwest homes produce substantially more per kW than the Pacific Northwest.
- Net metering. Whether your utility credits exported power at the retail rate or at a lower avoided-cost rate can matter as much as the lost federal credit.
- State and utility incentives, which still exist in some places.
- Rising rates. If rates rise 3% a year, real payback is shorter than the simple calculation suggests.
Leases and PPAs
Third-party-owned systems (leases and power purchase agreements) may still benefit from commercial tax credits that the installer claims and partly passes on. The rules and deadlines differ from 25D, so read the contract’s escalator clause carefully and compare the 20-year cost with buying outright.
Run your own numbers, including rate escalation and panel degradation, in the solar payback calculator.
Run the numbers for your project. The solar payback estimator uses the method in this guide.
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