California solar tax credits and incentives - the complete guide (2020 edition)
While there is no state-level income tax credit for solar, Californians have several federal and local incentives they can take advantage of.
California is a big and sunny state, so it’s no surprise that it’s one of the largest markets for solar in the United States.
This is helped by the 26% federal tax credit, but there are other rebates that Californians can take advantage of to lower their costs even further.
Here’s a complete list of solar tax credits and other incentives available to California homeowners in 2021.
Federal solar tax credit
Homeowners across the US can take advantage of the federal Residential Energy Efficient Property Credit, also known as the solar Investment Tax Credit for the business community. It gives you a deduction on your federal taxes for the installation of energy-related improvements to your home, including solar electric, solar hot water, small wind, and geothermal heat pumps.
The credit is currently calculated as 26% of your total system costs, but that amount will step down over time. Read our guide on solar rebates to learn more about this incentive.
The important thing to keep in mind with this program (and any other tax credit) is that it’s not an upfront cash back program, but a tax credit that reduces what you own in taxes to the federal government. If your tax liability is less than your credit, you won’t be able to take full advantage of the credit in one year. Fortunately, any unusued federal tax credit can be rolled over to the next year, giving you another opportunity to use it.
California state income tax credit for solar?
Unfortunately, California doesn’t offer a state-level income tax credit for solar. There was one available back in the 1990s, but it has long since been repealed (see RTC § 17039).
Local incentives for solar photovoltaics
There are couple cities in California that offer direct subsidies to homeowners for solar energy.
City of Glendale Solar Solutions Incentive Program
If you’re a customer of Glendale Water & Power, you’ll want to know about the Residential Solar Solutions Program.
This program offers an upfront cash incentive of $0.25 per installed Watt. This means that if, for example, you install a 6 kilowatt system (about solar panels), you can be eligible for a rebate of $1,500.
That’s a pretty sweet deal, but unfortunately that means the program is very popular, and in some years the program has been fully subscribed. This means that if you’re a Glendale homeowner who is thinking of going solar, the sooner you get started the better. The program is first-come, first-served.
Key things to know about this program:
- You should apply for the program as soon as you have a completed system design from your contractor.
- This program is for grid-connected, net metered systems only (ie. completely off-grid systems do not qualify).
- You will need a Solar Energy Permit from the Building & Safety department and a final building inspection after the install is completed.
- The maximum incentive is $7,500.
This is a great program, but the funds are limited and may not be renewed next year, so try to take advantage of it while you can.
San Francisco solar incentives (GoSolarSF)
GoSolarSF is a rebate program that gave substantial incentives for San Francisco Power and Hetch Hetchy customers that were installing rooftop solar. Unfortunately, that program is fully subscribed and no longer available for most categories.
The one exception is the Disadvantaged Communities-Single-Family Affordable Solar Homes (DC-SASH) category, which is a rebate for rooftop solar aimed at low income residents. If your household income is below the city’s median income, you may be eligible for a very substantial rebate of $3,000 per kilowatt. If you are a CalHome participant, there’s a good chance you’ll qualify.
The non-profit solar installer Grid Alternatives outlines the qualification criteria:
To qualify for DAC-SASH, homeowners must live in one of the top 25 percent most disadvantaged communities statewide using the CalEnviroScreen, and be a billing customer of Pacific Gas & Electric (PG&E), Southern California Edison (SCE), or San Diego Gas & Electric (SDG&E). Homeowners must also meet income qualifications as denoted by annual CARE and FERA guidelines. See the CPUC website for more information about income limits.
Battery storage incentives (Self-Generation Incentive Program)
With PG&E blackouts becoming commonplace, there’s been a lot of interest from Californians in solar batteries.
There are a couple significant advantages to having a solar battery. First, your home can continue to operate on stored solar energy even when the electric grid fails. The other advantage is that you can program your battery to avoid using grid electricity during peak hours when it’s more expensive.
This is relevant to new solar homeowners in California, who are required to have a time-of-use plan. Peak hour electricity rates can be twice as expensive as off-peak rates, or even higher. With a battery, you can save money by using stored solar electricity during those expensive hours.
Still, battery storage doesn’t always make financial sense. Batteries have rapidily become cheaper over time, driven by demand for electric vehicles, smartphones, laptops, and other devices that use lithium-ion. Even so, at the moment they’re pretty expensive.
Fortunately, the California Public Utilities Commission offers the SGIP program, which gives rebates to customers of the four major electric utilities in the state. There are different programs for large- and small-scale customers: homeowners will be interested in the “small residential storage” program.
At the moment, the rebate is $0.20 per watt-hour of battery capacity. What does this mean? For example, a Tesla PowerWall has a capacity of 13.5 kWh. This means you can get a rebate of $2,700 per battery. Given that the price of a PowerWall, including installation, is around $8,500, that’s a significant savings.
On top of that, the IRS has determined that solar batteries are eligible for the renewable energy tax credit as long as the battery in only charged by solar energy, and never from grid power. This tax credit is currently worth 26%. Put the SGIP and federal tax credits together, and you’ve got a big total savings.
Even so, not everyone needs a battery, but if you live in the wildfire territory in California, it can make a lot of sense and give you some peace of mind. Here’s a great video from the Fully Charged channel on Youtube that explains how the battery operates in a blackout.
Additional Energy Resiliency program incentive
You may also qualify for a significant $1.00 per watt-hour incentive called the Energy Resiliency program. You must meet two criteria to qualify: 1) You live in a High Fire Threat District, Tier 2 or Tier 3 zone as described by the maps linked on this page and 2) either be a qualified low-income resident OR qualify for the medical baseline program, which means that you have medical equipment that must be keep running.
This is a significant rebate, but the program qualifications can be a little confusing. Read the program handbook (PDF) for more details, or ask your solar installer.
Key things to know about the SGIP program
- There is a separate program budget for each major utility: Southern California Edison, Pacific Gas & Electric, SolCalGas, and San Diego Gas and Electric.
- You can view the current program budgets at the program website. Note: the SDG&E budget is listed under “CSE”.
- You should apply for the program as soon as your solar installer completes the system design.
- A post-installation inspection will need to be completed.
- The incentive funds will be paid sometime after the inspection is completed and the program administrator determines that everything is in order.
Those are main points, but the program handbook is 139 pages long. You can find it on the home page of the SGIP website.
California sales tax and property tax exemptions
An often overlooked incentive is sales tax relief for solar equipment. California Assembly Bill AB 398 gives partial relief from sales tax for the purchase of solar energy equipment. This is a 3.9375% reduction in sales tax, which can add up to a few hundred dollars in savings. Read this article for an analysis of this bill, or ask your solar installer about it.
Another significant incentive is California’s property tax exclusion for solar equipment. Normally, when you make improvements that increase the value of your home, your property tax assessment increases as well, which raises the tax you pay. This program can mean a tax savings of around a couple hundred dollars or less per year. On a yearly basis this isn’t huge, but when you think of the expected 25 year lifespan of a solar PV system, this tax relief can be really significant over time.
This incentive is set to expire in 2025, but it has been extended before, and might be again. Check out the DSIRE website for more details.