Solar Tax Credit 2026: What Santa Cruz and Monterey Homeowners Need to Know
The Federal Residential Clean Energy Credit is no longer available for new residential systems places in service after December 31, 2025. However, qualifying 2025 installations may still be claimed in 2026, and unused credits may carry forward. California incentives, battery programs, and utility savings may also help offset the cost of going solar.
Key Takeaways
The federal residential solar tax credit is not available for systems installed and placed in service after December 31, 2025.
Homeowners who completed a qualifying solar or battery installation in 2025 may claim the credit on their 2025 tax return filed in 2026.
Unused portions of a qualifying residential credit from a previous year may generally be carried forward.
Commercial solar projectsfollow different tax rules and may still qualify for federal incentives in 2026.
California battery programs, utility rate savings, and local energy incentives may still improve the value of going solar.
A customized system design is especially important under California’s current Solar Billing Plan.
Homeowners researching the 2026 solar tax credit may find conflicting information, but eligibility primarily depends on when the system was installed and placed in service. A qualifying system completed in 2025 may still be claimed on a 2025 tax return filed in 2026, while a new residential system completed in 2026 generally does not qualify for the former federal credit. Even so, Santa Cruz and Monterey County homeowners may still benefit from utility savings, battery storage, financing options, and available California incentives.
Is There a Federal Residential Solar Tax Credit in 2026?
The federal Residential Clean Energy Credit previously covered 30% of eligible expenses for qualified solar panels, battery storage, and other residential clean energy improvements.
Under the current rules, the credit applies to qualified property installed through December 31, 2025. It is unavailable for residential clean energy property placed in service after that date.
Therefore:
A residential solar system placed in service in 2025 may qualify.
A homeowner may claim that eligible project on a 2025 federal tax return filed in 2026.
A residential system installed and placed in service during 2026 generally does not qualify for the former federal credit.
Signing a contract or paying a deposit in 2025 is not necessarily enough if the residential system was not completed within the eligible period.
The IRS generally requires homeowners to claim the credit for the tax year in which the property was placed in service. Form 5695 is used to calculate and claim eligible residential energy credits.
Related: The Federal Solar Tax Credit Changed
Can You Claim a 2025 Solar Installation When Filing in 2026?
Yes, provided the project met the eligibility requirements in effect for 2025.
Tax returns filed during 2026 generally report income, expenses, and eligible credits from the 2025 tax year. Therefore, a qualifying solar or battery system completed in 2025 may still generate a credit on the homeowner’s 2025 federal return.
Qualified expenses may have included:
Solar panels
Inverters and related equipment
Wiring and mounting hardware
Eligible battery storage
Permitting and inspection expenses
Qualifying labor and installation costs
Homeowners should retain their contract, final invoice, payment records, permits, inspection documents, equipment specifications, and permission-to-operate records.
The credit was nonrefundable, meaning it could generally reduce federal income tax liability but would not automatically create a refund beyond the amount of tax owed. However, the IRS allows unused Residential Clean Energy Credit amounts to be carried forward to reduce tax liability in later years.
Can an Unused Solar Tax Credit Carry Into 2026?
A homeowner may still have an unused credit from a qualifying installation completed before the deadline.
For example, a homeowner who qualified for a residential credit in 2025 but could not use the full amount because of limited federal tax liability may generally carry the unused portion into a future tax year.
The expiration of the residential credit for new installations does not necessarily erase a valid carryforward from an earlier eligible year.
Homeowners should work with a qualified tax professional to confirm:
The original eligible credit amount
How much was used on the previous return
The remaining carryforward
Which forms and records are needed
How the carryforward affects the current tax return
What About the Solar Tax Credit for Businesses?
Commercial solar projects follow different federal tax rules than residential systems.
The Clean Electricity Investment Credit under Section 48E may apply to qualifying clean electricity facilities and energy storage property placed in service after December 31, 2024. The base credit is 6%, but certain projects may qualify for increased amounts when labor, domestic content, energy community, or other requirements are met.
However, federal legislation added earlier termination rules and stricter requirements for many wind and solar projects. For certain projects, eligibility may depend on when construction begins and when the system is placed in service.
Business owners considering solar in Santa Cruz or Monterey County should consult tax and solar professionals early. Important factors may include:
Project ownership
Construction start date
Placed-in-service date
Equipment sourcing
Prevailing-wage and apprenticeship requirements
Depreciation
Tax-credit transfer rules
Battery storage
Project size and energy use
Sandbar Solar & Electric can help businesses evaluate site conditions, electricity use, system design, and construction timelines. A tax professional should determine final credit eligibility.
Are California Solar Incentives Available in 2026?
Although the former federal residential credit has ended, certain California programs may remain available for eligible households.
Self-Generation Incentive Program
California’s Self-Generation Incentive Program provides incentives for qualifying energy storage projects. Battery systems can help homeowners store solar energy, manage electricity use, and maintain power for selected circuits during outages.
The Residential Solar and Storage Equity program also provides incentives for eligible low-income California households installing paired solar and battery storage. Eligibility, funding, and incentive levels depend on current program rules and availability.
Central Coast Community Energy Programs
Central Coast Community Energy serves communities throughout Monterey and Santa Cruz counties. Its standard Residential Battery Rebate Program closed to new applications on March 19, 2026. However, 3CE has announced plans for a Virtual Power Plant program expected to launch in fall 2026.
Programs can open, close, or change as funding is used. Homeowners should verify current availability before including a rebate in their financial calculations.
Pro Tip: Apply for an incentive before ordering equipment when the program requires advance approval or a reservation. Installing first may make the project ineligible.
How California’s Solar Billing Plan Affects Savings
New residential solar customers in California generally use the Net Billing Tariff, or Solar Billing Plan. Export rates vary by time and may be lower than the retail electricity rate, making thoughtful system design more important.
Homeowners should consider:
Daytime and evening energy use
EV charging and electric appliances
Battery size and backup needs
Roof space, orientation, and shading
A battery can store excess daytime solar energy for later use and may provide backup power for selected circuits during outages.
Does Solar Still Make Sense Without the Federal Credit?
Even without the federal residential credit, solar may still provide long-term value by:
Reducing grid electricity use
Supporting home EV charging
Storing energy for evening use
Providing backup power for selected circuits
Limiting exposure to future utility rate increases
Actual savings depend on energy use, system design, and property conditions. In Santa Cruz and Monterey counties, installers should also evaluate roof shading, marine-layer exposure, hillside construction, electrical capacity, and coastal weather before estimating solar production.
What Should Central Coast Homeowners Compare?
Homeowners should look beyond the advertised price or number of solar panels.
Before approving a proposal, compare:
Expected annual energy production
Current and projected electricity use
Roof age and condition
Panel and inverter warranties
Battery capacity and backup capability
Equipment quality
Financing rates and fees
Estimated Solar Billing Plan exports
Permit and interconnection requirements
Installer experience and licensing
Long-term service and maintenance support
Ask for clear explanations of the assumptions behind projected savings. Estimates should reflect the property’s actual electricity use, roof conditions, shading, rate plan, and future energy goals.
Plan Your Solar Project With Sandbar Solar & Electric
ContactSandbar Solar & Electric to schedule a personalized solar assessment. The team can evaluate your property, review your electricity use, explain current incentive opportunities, and design a solar or battery system around your needs in Santa Cruz, Monterey, and surrounding Central Coast communities.
Frequently Asked Questions
1. Is the 30% residential solar tax credit available in 2026?
No. The federal Residential Clean Energy Credit is unavailable for new residential solar property installed after December 31, 2025. A qualifying system completed in 2025 may still be claimed on the homeowner’s 2025 tax return filed in 2026.
2. Can I claim the credit if I signed my solar contract in 2025?
Signing a contract alone may not establish eligibility. Residential credit eligibility generally depends on qualified expenses and when the system was installed or placed in service. Consult a tax professional about the specific timing of your project.
3. Can I use an unused solar credit from a previous year?
Generally, yes. The IRS states that unused Residential Clean Energy Credit amounts may be carried forward to reduce federal tax liability in future years.
4. Are battery rebates available in Santa Cruz and Monterey counties?
Some homeowners may qualify for California SGIP incentives, including programs for eligible low-income households. The previous 3CE Residential Battery Rebate Program closed to new applications on March 19, 2026, although additional programs may become available.