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All You Need to Know About California Solar Tax Credit and Rebates Plus Common Misconceptions

(Source: SolarMetric)

The year 2021 has seen many changes regarding residential solar programs in California. One of the continuing developments is the net metering changes conducted by the Public Utilities Commission. The difference will see solar panel owners earn credit for the excess energy they can use later to offset energy used from the grid during the night. 

In addition, after these changes take effect, they may result in increased financial costs for homeowners looking to install solar panels in Orange County. If you have researched the federal tax credit, you must have seen that the California solar tax credit is one of the best in the Nation. 

How Do Solar Incentives Work?

The information on solar incentives is crucial for homeowners looking to install residential solar panels. You are eligible to save over 30% through the federal tax credit. Research is an essential tool to getting adequate information on California solar panel rebates. 

This article will give you the 2021 guide for California solar tax incentives, solar tax credits in California, and California tax incentivesFurther, read through to find out the common misconceptions around solar tax incentives in California. 

Let’s examine;

  • A Comprehensive 2021 Guide to Solar Incentives in California
  • What solar incentives are available to California residents
  • How Does the Federal Solar Tax Credit Work and How Much Will I Save?
  • Misconceptions You need to know on California Solar Tax Credit
  • Am I Eligible For The Solar Tax Credit?

A Comprehensive 2021 Guide to Solar Incentives in California

If you plan to install a solar system in your home, that will be the best decision you make in 2021. But is there a California tax rebate for California solar panels? Yes, there are, and you need to take advantage of the federal tax credit, California’s solar property tax exemption, local rebates, net metering, and the financial mechanisms you should economize with the new solar system. 

Let us look at the California solar incentives available to California residents.

What Solar Incentives are Available to California Residents?

  • Federal Solar Investment Tax Credit (ITC)

The Federal Solar Investment Tax credit will have a significant impact on the solar installation costs in California. The current ITC is at a 26 percent federal tax credit claimed against the tax liability. 

Section 25D of the ITC gives a homeowner the chance to apply the credit to their income taxes. The credit is valid when homeowners purchase solar systems and get proper installations from reliable providers.

This tax credit reduces the income taxes that you are supposed to pay the federal government. ITC focuses on the amount invested in the solar system. Residential ITC is equal to 26 percent invested in the solar property. The schedule is as detailed below;

  • 26 percent for the projects that start construction in 2021 and 2022
  • 22 percent for projects that begin construction in 2023
  • The residential credit falls to zero after 2023

(Source: EnergySage)

  • Net Energy Metering (NEM) in California

Net metering allows you to get near the total retail rate for the extra electricity you send back to the grid. You get an immediate refund, but not a full refund due to the recent NEM amendments in California. They have amended their NEM to NEM 2.0.

Part of the change is that the energy you purchase from your utility company comes with a small charge of 3 cents per kilowatt-hour (kWh). On the other hand, under the  NEM 2.0, you don’t get this charge as credit when you send electricity back to the utility grid.

With NEM, you will need to sign up for a time-of-use billing plan (TOU) with variable energy costs. Usually, the evening has the most demand, hence high energy prices. 

To offset the time-of-use billing, it is advisable to install a solar energy storage system. It will be charged with free solar electricity during the day and discharge in the evening. Therefore, it will be much more affordable.

While using NEM, the number of kilowatt-hours you send to your local utility companies have a monthly netting. You pay for the balance if you happen to use more than you send to the grid at the end of the year.

California net metering is an excellent investment in the life of your solar system. Your savings increase if you combine the time-on-use billing with the ability to send power to the grid. In addition, working with Enlightened Solar as an installation provider will maximize your investment. We will advise you on how you can save energy by the use of solar power and also guide you on Net Metering by designing your solar system. 

  • California Tax Credit

California policymakers have enacted a property tax exemption for solar systems. It is great for homeowners because it increases the value of your home by 70% of system costs. However, it means that when the value of your home goes up, your property taxes will not.

(Source: Statista)

SGIP – California’s Solar Battery Storage Program

By now, you know that California is the leader in solar energy incentives. However, you should also note that the region also leads in battery storage. It’s made possible by the Self Generation Incentive Program (SGIP).

If your battery storage gets service through PG&E, SCE, Southern California Gas, or SDG&E, you are eligible for the program. In addition, battery storage systems that are smaller than 10 kW and installed on residential property are eligible for an incentive of $0.25 per watt-hour of storage installed.

California Solar Incentives for Low-income Households

All over the US, solar energy is adopted in areas with higher incomes even though low-income communities have the most to gain from the benefits of solar power. Low-income solar incentives can influence solar development in disadvantaged communities. California has developed two types of low-income solar programs aimed at single-family homeowners and owners of multi-family properties:

  • Single-family Affordable Solar Homes (SASH) Program

California SASH solar program offers solar money to single-family homeowners. The non-profit organization Grid Alternatives administer the program. They help provide green job training in low-income areas to help people secure good-paying green energy jobs.

What are the SASH program requirements?

If you can qualify for the SASH program, you’ll get an upfront incentive of $3 per watt of solar installed.

For example, if you want to install a 6-kilowatt system on your home, you’ll get an incentive of $18,000! That’s basically enough to pay for the entire cost of your solar system.

Here are the qualifications to be eligible for the SASH program:

  • You are Pacific Gas & Electric, Southern California Edison, or San Diego Gas & Electric. 
  • You are a homeowner.
  • You have a household income that is 80% of or below the about rea median income.
  • You live in a home considered to be “affordable housing” by the California Public Utility Code.

 

  • Multi-Family Affordable Solar Homes (MASH) 

The MASH program’s design fits the people who own a multi-family housing complex. In addition, the homeowners qualify for an extensive grant program to retrofit low-income multi-family housing developments with solar power. 

These grants range from $1.10 to $1.80 per watt of the solar installed. To qualify for the MASH program, you need the following:

The multi-family residential building must get financing from one of the following:

  • Low-income housing tax credits
  • General ob
  • Tax-exempt mortgage revenue bonds
  • General obligation bonds
  • Some kind of local, state, or federal grants and loans
  • That at least 20% of the total units are sold or rented to lower-income residents.

How Does the Federal Solar Tax Credit Work and How Much Will I Save?

The Federal solar tax can go a long way in lowering your overall photovoltaic system costs. On the other hand, several misconceptions portray a different picture of the program. As a result, the information may mislead you into signing up for the program.

When you understand the common misconceptions, you will maximize the program’s benefits as long as it lasts. So what are the misconceptions about California solar panel rebates

(Source: IGreenRemodeling)

Misconceptions You Need to Know About California Solar Tax Credit.

  • No Refund Check Comes with the Solar Tax Credit Program.

According to the Solar Energy Industries Association, Solar Investment Tax Credit (ITC) is one of the most significant Federal policies supporting solar energy development in the USA. Since its inception, there has been a massive growth of solar adoption in the US by over 10,000%. It has seen the creation of more jobs and also increases in the US economy through billion-dollar investments. However, as a homeowner looking to install solar panels, no cashback comes from solar tax credit California. If, for example, your rooftop solar system installation costs $30,000. If you claim the 30% ITC, you are eligible to save $9,000. 

Do you get this as a cash refund?

No, you will not get this claim in cash. 

What happens?

Instead of the cash at hand, the money goes to your tax liability. This money helps you a great deal in reducing your yearly tax. 

  • Federal Tax Credit is Not Calculated from Gross Cost.

A lot of homeowners think that the ITC is calculated from the gross cost. That is not the case. As we calculated above, the 30% credit on a $30,000 solar panel system installation would sum up to $9,000. It is only possible if the $30,000 is the net cost. It is against the IRS rules to calculate the gross costs.

In addition, if you received any local or state financial incentives for your residential solar panel installation, it has to be deducted before calculating the 30% credit amount.

Let’s dive into this example;

Suppose your $30,000 installation qualified for a California solar tax rebate of $2,000 and a $1,000 rebate from your local utility company. It means that your net cost will be $27,000. Hence, the federal solar ITC would then be $8,200 and not $9,000.

Making the ITC calculation from the Gross tax will make you incur a tax bill instead of a deduction.

  • Not Everyone is Eligible for the Federal Solar Tax Credit

As a homeowner looking to install solar panels in your home, you are about to experience a stress-free life. Solar panels will save you a lot of energy in the long run. Most homeowners invested in solar panels have testified to the numerous benefits, especially on lower electric bills. 

However, not every homeowner can claim the federal solar ITC. It is because not every person is eligible for the California tax incentive

To benefit from the ITC, you have to owe federal income taxes. If you don’t, then you will not be eligible. As the policy stands, the ITC gets rolled over to the future tax years. So with a tax liability in the coming year, you will have the ability to claim the 30% credit.

A great advantage to note is that it is possible to carry forward ITC to the future tax years. Therefore, if you have a tax liability next year, you will be eligible to claim a 30% credit. It would be advisable to talk to your tax accountant about maximizing solar tax credit in California. 

Enlightened Solar has contributed to the growth of solar installations in Orange County over the years. We have a vast knowledge of California solar tax credits and can advise you as you install your residential solar panels. Check out our wide range of services in regards to solar installation in Orange County.

As a homeowner planning to install solar panels, we at Enlightened Solar are open to working with you. We have comprehensive knowledge of California solar panel rebates. In addition, we will assist you in taking advantage of the California solar tax credit. We are proud to have seen solar installations in  Orange County grow tremendously over the years. 

Contact us to request a quote and start the process of getting you into the solar tax credit California program. You need to enjoy all the benefits that come with going solar.