Can you earn a solar tax credit in California by installing or using solar alternatives to fossil fuels in the home? The short answer is that you won’t find a statewide tax credit per se, but there are incentive programs and certain tax exclusions (which may be interpreted differently than tax credits) for going solar that may help offset the costs of purchase and installation.
Some programs offer direct payments for putting energy back on the grid, other programs may allow you to fund the installation of solar energy via increased property taxes, as we’ll see below.
California Solar Tax Credit: Federal Taxes
There is a federal tax credit you can claim, for going solar anywhere in the United States, not just in California. It is known as the Federal Solar Tax Credit, which allows a dollar-for-dollar reduction in your federal income taxes. That reduction is calculated as a percentage of the cost of what the IRS defines as a “solar photovoltaic system” installed during the tax year the credit is claimed in.
To claim this 30% tax credit, the system must meet IRS requirements, and be used for a residence. Other requirements include, but may not be limited to:
- Installation must have occurred between January 1, 2006, and December 31, 2032.
- The solar system must be installed in a primary or secondary residence in the United States, “or for an off-site community solar project,” according to Energy.gov.
- You do not rent the solar system but own it either outright or on a payment plan. Leased systems do not qualify at press time.
- The solar PV system is new or being used for the first time. This tax credit is described by Energy.gov as an “original installation” tax credit.
The Inflation Reduction Act of 2022 extended the solar tax credit of 30% until at least 2032.
Not A Tax Credit: Property-Assessed Clean Energy (PACE)
PACE is an acronym that stands for Property Assessed Clean Energy, sometimes referred to as the Home Energy Renovation Opportunity (HERO).
This program allows homeowners to finance a qualifying solar energy installation project with increased property taxes. Local California government agencies partner with participating lenders to offer loans to pay for the installation; the money is repaid to the local agency via increased property taxes.
Those who use PACE can typically expect two decades of increased payments. At press time, California State Government recognizes four partner agencies offering PACE loans:
- Renew Financial Group LLC offers the CaliforniaFirst program
- PACE Funding Group, LLC offers programs including PACEfunding, Home Run Financing
- FortiFi Financial, Inc. offers E3; Energy Efficient Equity
- Ygrene Energy Fund California LLC offers Ygrene, Ygrene Energy Fund, YgreneWorks, Ygreneworks, Ygrene Fund California
California Property Tax Exclusion for Solar Energy Systems
When you buy or sell property in California, your property will be reassessed. This typically means higher property taxes. A similar rule goes into effect when you make a major improvement to a home you own.
But adding a solar system is not part of that rule–solar is exempt from the property tax reassessment rule and your property taxes will not go up just for installing a solar system. This exclusion was not designed to be a permanent part of the tax code; at press time the exclusion was extended to January 1, 2025.
Self-Generation Incentive Program
The California Public Utilities Commission offers the Self-Generation Incentive Program (SGIP) which features rebates for installing energy storage technology. While these are not tax credits, they can be financial incentives to consider going solar.
This program has received funding of more than a billion dollars through 2024, intended to encourage solar use in communities that are hardest hit by wildfires, rolling blackouts, and other problems. The program encourages low-income applicants and “medically vulnerable” applicants.
These programs are intended for single-family residences, and apartments. Who is able to apply for SGIP? Residential customers of:
- Pacific Gas and Electric Company
- Southern California Edison
- Southern California Gas Company
- San Diego Gas & Electric
These customers may qualify for SGIP rebates up to roughly 25% of the cost of a solar system.
California Single-Family Affordable Solar Housing (DAC-SASH)
The SASH program offers solar incentives for qualifying low-income homeowners who are customers of:
- Pacific Gas and Electric
- Southern California Edison
- San Diego Gas & Electric
SASH is meant to encourage solar installation in low-income communities, offering “up-front financial incentives for the installation of rooftop solar generating systems” according to the official site.
Incentives may include payments to the homeowner. Up to $3 per watt may be available to qualifying low-income homeowners who choose to install an “onsite solar system” and attend energy efficiency training. To qualify, you must live in a “top 25 percent disadvantaged” community, and meet income limits.