How Will Solar affect your HVAC Business

In 2026, both the solar and high-efficiency HVAC landscape in the U.S. will undergo major changes as federal tax credits that drove the residential market for years are set to expire, creating a challenging split between incentives for homeowners and those for commercial or third-party-owned systems.

What’s Changing in Federal Incentives

The key federal credits for homeowners—the Residential Clean Energy Credit (Section 25D) and the Energy Efficient Home Improvement Credit (Section 25C)—will end on December 31, 2025. This will dramatically increase upfront costs for people buying solar or high-efficiency HVAC systems, stretching payback periods and putting such upgrades out of reach for many middle-income households.
Commercial projects, non-profits, and third-party-owned systems (like leases or PPAs) still have access to the 30% Investment Tax Credit (Section 48E), but these now come with stricter deadlines and domestic sourcing rules. To qualify for the 30% credit, projects have to either start construction by July 4, 2026 (and can then take up to four years to finish) or be completed by December 31, 2027 if started later.
There’s also a new layer of compliance: a growing percentage of project components must come from non-Foreign Entities of Concern (like China or Russia), with thresholds increasing each year.

Impact on Residential Projects

The expiration of Section 25D wipes out a 30% tax credit for residential solar, batteries, and geothermal, often worth $8,000–$9,000 per install.
The end of Section 25C eliminates a 30% annual credit (up to $2,000 for heat pumps, $1,200 for insulation and other upgrades) for homeowners improving efficiency.
These changes make direct ownership less attractive; third-party ownership models such as solar leases or PPAs become more competitive because companies can still tap the commercial ITC and pass savings on.

How States Fill the Void

Incentives now vary dramatically by state. Some, like New York, California, and Massachusetts, have robust, well-funded, and long-term programs that are expected to continue. Examples include New York’s NY-Sun and Clean Heat, California’s TECH Clean California and Self-Generation Incentive Programs, and Massachusetts’ SMART and Mass Save.
Other states offer utility rebates, local tax exemptions, and are preparing to roll out federally funded, state-run Home Energy Rebate Programs (often branded as HOMES or HEAR), which will be the main source of support for residential efficiency and electrification going forward.

Key Examples of State Incentives (2026–2027)

California

Property tax exclusion for solar installed through 2026 (pending extension for 2027).
TECH Clean California and Smart Homes offer up to $4,250 (plus bonuses) for heat pump installs.
SGIP rebates for battery storage, especially for equity and resiliency customers.
Up to $8,000 federal rebates for heat pumps for low-income households via the HEEHRA program.

New York

25% state tax credit on solar (max $5,000), plus MW block cash incentives for installs in specific regions.
NYS Clean Heat offers bigger rebates for homes with insulation/weatherization; slated to become mandatory for heat pumps from 2028.
All-Electric Buildings Act will require new homes built in 2026 or later to use electric heat and appliances.

Massachusetts

15% state tax credit for renewables (max $1,000).
SMART pays system owners per kWh produced for 10–20 years; adders for storage, location, low-income.
Mass Save provides up to $16,000 per home for heat pumps, plus huge rebates for insulation.

Texas, Florida, Illinois, Arizona, Colorado, North Carolina

Most rely on property/sales tax exemptions and a patchwork of local utility rebates.
Eligibility, rebate amounts, and application deadlines vary not just by state, but utility and sometimes city.
States are preparing state-administered IRA-funded rebate programs—these will be the key source of help for most low/moderate-income households.

Strategic Recommendations

For homeowners: Focus on state and utility programs, especially new HOMES/HEAR rebates. Weatherize homes in advanced states like New York to increase heat pump rebate value.
For businesses: Act early to meet commercial/third-party ITC deadlines. Prepare for supply and labor bottlenecks as the market rushes to get projects started by July 2026.
For everyone: Stay vigilant for changing deadlines and emerging incentives. The DSIRE database is the go-to public resource for tracking state and local programs.

Federal support for residential direct ownership is sharply shrinking, and companies should expect greater competition for incentives, more paperwork, and a strong shift toward leases, PPAs, and local/state-sponsored rebates.