What Changed in 2026
Until the end of 2025, homeowners could claim a 30% federal tax credit on the cost of a solar system. That credit, the Residential Clean Energy Credit under Internal Revenue Code § 25D, was ended early by the 2025 budget law. According to the IRS instructions for Form 5695, you can't claim it for expenditures made after December 31, 2025. A system you buy in 2026 or later gets no federal credit. If you had unused credit from a 2025 installation, it can still be carried forward.
That raised the effective price of solar for new buyers by roughly the amount of the old credit. Any state, utility or local rebates are separate and may still apply, so the first step is to check what is available where you live (the DSIRE database at dsireusa.org lists incentives by state).
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The Baseline: A Typical Home
Every number below comes from the same starting example, which you can change in the calculator:
- Monthly electric bill: $150, at 17¢ per kWh (about 10,588 kWh a year)
- Panels sized to cover 100% of that use
- 1,400 kWh produced per kW of panels each year
- Installed cost of $3.00 per watt, before incentives
- Electricity prices rising 3% a year, panels losing 0.5% of output a year
- Evaluated over 25 years, the usual panel warranty
| Result | Baseline Home |
|---|---|
| Recommended system size | 7.56 kW |
| System cost (no federal credit) | $22,689 |
| First-year savings | $1,800 |
| Payback period | 11.1 years |
| Total savings over 25 years | $61,365 |
| Net savings after paying for the system | $38,676 |
| Return on investment | 170% |
Four Inputs That Decide the Answer
1. How much sun your roof gets
A kilowatt of panels makes about 1,100 kWh a year in cloudy regions and up to 1,700 kWh in the Southwest. The same bill needs a bigger, costlier system where the sun is weaker.
| Sun Level (kWh per kW per Year) | System Size | System Cost | Payback | Net Savings (25 Years) |
|---|---|---|---|---|
| Low (1,100) | 9.63 kW | $28,877 | 13.7 years | $32,488 |
| Average (1,400) | 7.56 kW | $22,689 | 11.1 years | $38,676 |
| High (1,700) | 6.23 kW | $18,685 | 9.3 years | $42,680 |
Swipe sideways to see all columns. The free NREL PVWatts tool gives a production estimate for your exact address, roof angle and shading.
2. What you pay per watt
Installer pricing varies widely. At the same sun and the same bill:
| Installed Cost per Watt | System Cost | Payback | Net Savings (25 Years) |
|---|---|---|---|
| $2.50 | $18,908 | 9.4 years | $42,457 |
| $3.00 | $22,689 | 11.1 years | $38,676 |
| $3.50 | $26,471 | 12.7 years | $34,894 |
Fifty cents per watt moves the payback by about 1.7 years. That is why getting several quotes matters more than almost anything else.
3. What your electricity costs
Solar saves you the price of every kWh you no longer buy, so expensive power makes it far more attractive. Same home, different utility rates:
| Electricity Rate | System Size | System Cost | Payback | Net Savings (25 Years) |
|---|---|---|---|---|
| 12¢ per kWh | 10.71 kW | $32,143 | 15.0 years | $29,222 |
| 17¢ per kWh | 7.56 kW | $22,689 | 11.1 years | $38,676 |
| 28¢ per kWh | 4.59 kW | $13,776 | 7.1 years | $47,589 |
At 12¢, a $150 bill means you use far more electricity, so you need a much bigger system, and the payback is long. At 28¢ the same $150 buys much less power, so the system is small and pays back in about seven years.
4. Whether electricity prices keep rising
The baseline assumes a 3% yearly increase in your rate. If prices stayed flat instead, the same system would take 13.0 years to pay back and net only $19,712 over 25 years. Rising rates are a large part of the return, which is a reasonable bet over decades but not a guarantee.
What Does Not Matter as Much as You Think
A bigger or smaller electric bill does not change the payback. With the baseline sun, price and rate, a $100 bill, a $150 bill and a $250 bill all pay back in 11.1 years. The bill only changes the size of the system and the total dollars saved:
| Monthly Bill | System Size | System Cost | Net Savings (25 Years) |
|---|---|---|---|
| $100 | 5.04 kW | $15,126 | $25,784 |
| $150 | 7.56 kW | $22,689 | $38,676 |
| $250 | 12.61 kW | $37,815 | $64,459 |
Covering 70% of your use instead of 100% also keeps the payback at 11.1 years: a 5.29 kW system for $15,882 saves $1,260 in the first year and nets $27,073. A smaller system is a way to spend less without losing efficiency, especially if your utility does not pay full price for extra energy.
A $5,000 state or utility rebate is worth more: it cuts the payback from 11.1 to 8.9 years and raises the 25-year net savings to $43,676.
What the Math Leaves Out
The estimate is a starting point. Before you sign, ask about:
- How your utility credits extra energy. Net metering, where each kWh you send to the grid offsets one you buy, is not available everywhere. Some states pay less than the retail rate for exports, which cuts your savings. California's rules for new solar customers are a well-known example.
- Fixed charges. Most utilities bill a monthly connection fee that solar does not remove.
- Financing. A solar loan adds interest and lengthens the payback. Compare the loan's APR with what you could earn on the cash.
- Inverter replacement. The inverter often needs replacing after 10 to 15 years, a cost the panel warranty does not cover.
- Roof condition. If the roof needs replacing within a few years, doing it before the panels go on avoids paying to remove and reinstall them.
- Leases and power purchase agreements. These lower or remove the upfront cost, but you pay the company for the system or the power it makes, and you generally do not keep the savings an owner gets. Check the total payments over the contract and any yearly price increase.
A Quick Checklist Before You Buy
- Get at least three written quotes and compare the price per watt.
- Ask each installer for the expected yearly production and whether it is guaranteed.
- Confirm how your utility credits exports and what fixed fees remain.
- Check state and local incentives that still apply.
- Read the warranty terms for panels, inverter and workmanship.
- Run your numbers through the calculator and check that the payback fits how long you plan to stay in the home.
Frequently Asked Questions
Is there still a federal tax credit for solar panels?
Not for homeowners who buy a system after 2025. The Residential Clean Energy Credit (IRC § 25D) no longer applies to expenditures made after December 31, 2025. State, utility and local incentives may still exist, and unused credit from a 2025 installation can be carried forward.
How long does it take for solar panels to pay for themselves?
It depends on your electricity price, the sun at your location, the installed cost and any rebates. Without a federal credit, roughly 9 to 14 years is common, and it is shorter where power is expensive and the sun is strong.
Does solar increase the value of my home?
Owned systems can raise a home's value in some markets, but how much varies, and leased panels can complicate a sale. Ask a local appraiser or agent rather than relying on a general figure.
Should I buy solar now or wait?
Prices, incentives and utility rules change, so waiting is a gamble in both directions. If the payback is short enough with today's prices, delaying costs you the savings in the meantime. If it is borderline, a better quote or a new rebate could improve it.
Is solar worth it if I plan to move soon?
Usually only if the payback is short. You recover your investment through the electricity you no longer buy, so selling before payback means relying on the added home value to make up the difference.
Conclusion & Recommended Next Steps
Without the federal credit, solar is a longer investment, but it is still a good one where electricity is expensive, the sun is strong or a state rebate applies. The deciding numbers are your rate per kWh, your sun, the price per watt and the incentives you can find. Put your own bill and quotes into the calculator, then compare the result with other ways to use the same money. If you are weighing the upgrade against buying a home or paying down debt, our down payment guide and our affordability guide can help you set priorities.
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Disclaimer: This guide is intended solely for educational and informational purposes and does not constitute personalized financial, investment, legal, or tax advice. Solar prices, incentives, utility rules and tax law change often, and the figures above are illustrations based on stated assumptions, not quotes or guarantees. Get written quotes and consult a qualified tax professional before you buy.