How Solar Tax Incentives Can Help You Save in California

Solar Tax Incentives California
January 2, 2025

Solar Tax Incentives in California: A Guide to Saving on Your Solar Installation


California is a prime location for solar energy, thanks to its sunny climate and commitment to renewable energy. Many homeowners and businesses are taking advantage of solar tax incentives, which reduce the upfront cost of solar panel installation. In this article, we’ll explore the different solar tax incentives available in California, how they can help you save money, and how you can benefit from these programs.

What Are Solar Tax Incentives?

Solar tax incentives are financial programs provided by federal, state, and local governments to promote solar energy use. These incentives help reduce the cost of installing solar panels and related systems, making solar energy more affordable for homeowners and businesses.

Types of Solar Tax Incentives Available in California

California offers a range of solar tax incentives. Here’s a breakdown of the key federal, state, and local programs that can help you save on your solar installation.

Federal Solar Investment Tax Credit (ITC)

The Federal Solar Investment Tax Credit (ITC) is one of the most significant tax incentives. It offers a direct tax credit for homeowners and businesses who install solar systems.

How Does the ITC Work?

The ITC allows you to deduct a percentage of your solar installation costs from your federal taxes. For instance, if your solar system costs $20,000 and the ITC is 30%, you can claim a $6,000 tax credit. This reduces your federal tax bill. For California homeowners, the ITC offers a 30% credit on the total cost of the solar system, including panels, inverters, and installation.

What’s Next for the ITC?

It’s essential to act quickly since the ITC is set to decrease in the future. Here’s a look at the planned schedule:

  • 30% until 2032
  • 26% in 2033
  • 22% in 2034
  • After 2034, it will revert to 10% for commercial systems and 0% for residential systems.

California Solar Tax Incentives

In addition to the federal incentives, California has its own set of solar incentives that make the transition to solar energy even more affordable.

California Solar Initiative (CSI)

The California Solar Initiative (CSI) was a major incentive program that helped residents go solar. Although CSI is now closed to new applicants, there are other opportunities for incentives through local utility programs.

Property Assessed Clean Energy (PACE)

The Property Assessed Clean Energy (PACE) program provides a financing option for solar installation. With PACE, homeowners can finance their solar installation through property tax assessments, spreading payments over 20 years or more.

PACE is available to homeowners in California, and the repayment for the solar system is tied to the property, not the homeowner. So, if you sell your home, the new owner assumes the remaining payments.

Local Utility Rebates and Incentives

Many California utility companies, like Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E), offer rebates and incentives to encourage solar adoption. These programs provide rebates based on the size of your solar system or the amount of electricity it generates. Be sure to check with your local utility for details.

How to Qualify for Solar Tax Incentives in California

To qualify for the solar tax incentives available in California, you need to meet specific eligibility criteria. Here’s a quick overview of the requirements for the most common programs:

Federal Solar Investment Tax Credit (ITC)

  • Eligibility: Homeowners or businesses installing solar systems on their properties.
  • Requirements: The system must be installed in the year you are claiming the credit.
  • How to Claim: File IRS Form 5695 with your federal tax return to claim the ITC.

California Solar Incentives

  • Eligibility: Homeowners or businesses installing solar systems in California.
  • Requirements: The system must meet your utility provider’s requirements or the state program’s guidelines.
  • How to Claim: Apply for rebates or incentives through your utility provider or a state agency.

PACE Financing

  • Eligibility: Homeowners who own their property and meet certain credit requirements.
  • Requirements: The property must be eligible for PACE financing based on location and value.
  • How to Apply: Apply through a PACE provider for solar system financing.

Solar Tax Incentives for Businesses

California also offers solar tax incentives for businesses. These can be substantial, helping reduce the cost of installing solar systems on commercial properties.

Federal ITC for Businesses

Like homeowners, businesses can claim the 30% Federal ITC for solar systems installed on their properties. This can lead to significant savings, especially for larger commercial installations.

California’s Net Energy Metering (NEM)

California’s Net Energy Metering (NEM) program allows businesses to receive credits for excess solar power generated. These credits can offset electricity costs when the system isn’t producing enough power, such as during the night or on cloudy days.

Modified Accelerated Cost Recovery System (MACRS)

Under the Modified Accelerated Cost Recovery System (MACRS), businesses can depreciate their solar system over five years, providing additional tax savings.

How to Maximize Your Savings on Solar Installation

To make the most of California’s solar tax incentives, follow these tips:

Plan Ahead

Many solar tax incentives are time-sensitive, so plan your solar installation carefully to maximize the savings available to you.

Work with an Experienced Solar Contractor

A trusted and experienced solar contractor can guide you through the incentive process and ensure you don’t miss any opportunities. They can also help with applying for rebates and other financial incentives.

Take Advantage of Financing Options

Programs like PACE financing allow you to make solar installation more affordable by spreading payments over time. Use financing to reduce the upfront costs of solar.

Conclusion

California’s solar tax incentives offer substantial savings for homeowners and businesses looking to make the switch to solar energy. With federal and state incentives, along with local rebates and financing options, now is a great time to invest in solar. Whether you want to reduce energy costs at home or improve your business’s bottom line, California’s solar tax incentives can help you reach your goals while saving money.

Ready to explore your solar options and save on installation? Contact Solarado Roofing & Solar today at (916) 413-7376 for a free consultation and find out how solar can benefit you in California.