Tax Credits

In addition to cash rebates, California homeowners and businesses can also qualify for a one-time tax credit on their federal income taxes. There is no longer a state tax credit for solar power.

The federal tax credit was established in The Energy Policy Act of 2005 (H.R. 6, Sec. 1335) and renewed on October 3, 2008 for eight years.

Through December 31, 2008, the value of the credit is 30% of the cost of the system, after state or local rebates, or $2,000, which ever is less. In other words, if a California homeowner bought a solar system for $8,000 but received a state rebate valued at $2,000, they would only qualify for an $1,800 federal tax credit ($8,000-$2,000 x 30 percent = $1,800). However, since most residential systems cost well over $8,000, most homeowners will qualify for the $2,000 cap.

After December 31, 2008, the federal tax credit is worth 30% of the post-rebate cost of the system without a cap. In other words, if a solar system cost $15,000 after a state or local rebate, a homeowner can qualify for a $4,500 credit on their federal taxes.

The credit is good the year the system is purchased. If a system is purchased before December 31, 2008, it can not qualify for the higher credit. In other words, the higher credit is not retroactive for systems purchased before January 1, 2008.

For new homeowners, the date of installation is the date the new solar home is first occupied.  There is no cap on system size.

For commercial installations, the Energy Policy Act of 2005 provides for a 30 percent credit based on the final cost of the system, again accounting for local or state incentive programs. There is no cap on the amount of this tax credit nor on system size. This credit was also extended through 2016.

It is important to note that for both homes and businesses, a state income tax credit is no longer available. However, California law does allow for a property tax exemption for 100 percent of the value of a solar system installed before 2010.(1)

Assessments

California law exempts the value of a solar power system from being added to property taxes.  In other words, California home and business owners can not be taxed on their solar power systems.  This exemption was established with AB 1099 in 2005.

 (1) Section 73 of the California Revenue and Taxation Code.