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). It expires at the end of 2007 and must be renewed by Congress to best coordinate with California’s Million Solar Roofs Initiative.

For residential installations, the value of the credit is 30 percent 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 foe the $2,000 cap.

This tax credit is valid for all residential solar systems installed between January 1, 2006 and December 31, 2007. 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.

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.