Does a Federal Tax Credit Still Apply to Batteries in 2026

On a $14,000 home battery installed in California this year, the federal government contributes nothing. Under the rules that applied through 2025, the same battery would have earned its owner a $4,200 credit against federal income tax, which was 30 percent of the installed cost and money most buyers had counted on before they ever called an installer.

The reason fits in one sentence. The One Big Beautiful Bill Act, signed July 4, 2025, ended the Section 25D residential clean energy credit for any solar or battery expenditure made after December 31, 2025. There was no taper. The credit had been scheduled to run into the 2030s, and it stopped on New Year's Eve, roughly nine years early.

The number lingers because so many people used it. In 2023 about 1.3 million federal returns claimed the credit, and the average claim came to roughly $8,200 a system, according to NRG Clean Power. Many Californians pricing a battery this fall still subtract 30 percent in their heads before they add a state or utility rebate on top. For anyone who will own the system, whether they pay cash or take out a loan, that subtraction is now wrong. One federal route remains, and it runs through leases and power purchase agreements, where the company that owns the equipment claims a commercial credit. The homeowner does not.

The test is the date the installation is finished. The date you paid does not count. The IRS spelled this out in its fact sheet on the new law: "If installation is completed after December 31, 2025, the expenditure will be treated as made after December 31, 2025, which will prevent the taxpayer from claiming the section 25D credit." Suppose a homeowner signed and paid in November 2025 and the crew finished the wiring in January 2026. That homeowner gets nothing. The rule gives batteries no separate treatment. They fall under the same placed-in-service test as panels.

Credit that was earned on time is not taken back. The credit was nonrefundable, so it could only reduce tax already owed. Owners who installed before January 1, 2026 and could not use all of it can carry the remainder forward to later returns. The final 2025 credit was claimed on IRS Form 5695, due April 15, 2026, or October 15, 2026 with an extension.

The first place is the payback period. On a 7.2 kW solar system, losing the credit adds $5,200 to $7,000 to the net cost. NRG Clean Power estimated in September 2026 that this stretched simple payback from 5.2 to 7.0 years out to 7.4 to 10.0 years. California residential installations were down 12 percent year over year in the second quarter of 2026.

The larger surprise is what was supposed to sit beside the federal credit. California's battery rebate, the Self-Generation Incentive Program, closed its ratepayer-funded budgets to new applicants on December 31, 2025, the same night 25D ended. The statewide program dashboard currently lists Small Residential Storage as Closed in every territory. The one residential pathway left is the income-qualified Residential Solar and Storage Equity budget under AB 209. Figures verified in July 2026 put it at up to $1.10 per watt-hour, about $14,850 on a 13.5 kWh battery. That budget is waitlisted in most territories and funds new projects only as earlier reservations are cancelled. Households qualify through income at or below 80 percent of area median, enrollment in CARE or FERA, a home in a Tier 2 or Tier 3 fire-threat district, or reliance on electric medical equipment.

The smaller incentives are local, and their size depends on the utility. Southern California Edison offers $150 toward a qualifying portable power station for customers in Tier 2 or Tier 3 fire zones, up to five per address. The largest battery money now comes from municipal utilities. As of October 2026, Riverside Public Utilities was paying $500 per kWh, up to $10,000 a project, or $850 per kWh for SHARE customers. As NRG put it, "Your utility now decides your incentives more than any state or federal program does."

Two things get mistaken for the old credit. The first is a phase-down. There is no reduced rate for 2026 and no partial credit for owned systems. The second is Section 48E, which is real but is claimed by the system's owner, and in a lease or PPA that owner is the company.

Qualifying for the commercial credit has also become harder. A California CPA's analysis notes that a signed contract, a deposit or an equipment order no longer automatically counts as beginning construction. Any benefit a homeowner sees from 48E reaches them only through the lease or PPA price.

Remove the 30 percent from any calculation for a system you will own. If a quote still leans on a federal credit, ask whether it is a lease or a PPA, who claims the credit, and whether the installation can be placed in service before December 31, 2027.

One state deadline still matters this year. California's Section 73 property tax exclusion covers solar and storage completed before January 1, 2027. NRG estimates the exclusion saves about $5,250 over 20 years on a typical $21,600, 7.2 kW system. A system that is contracted but not finished by that date does not qualify.

The most useful step is to get the same system priced two ways, as a purchase and as a lease or PPA, so you can see the real out-of-pocket cost of each. The $14,000 battery still costs $14,000 to own. What has changed is who, if anyone, helps pay for it. Washington no longer does, unless a leasing company claims the credit for itself. The state's general rebate has closed. The help that remains depends on your income, your fire zone and the utility whose name is on your bill.