Will my property tax increase with solar panels? The answer to this question may depend on the state that you live in. Solar power pays for your installation costs over the long run, but some states charge higher property taxes if you have solar panels installed on your home. Fortunately, homes in California have a solar property tax exemption that they can use to save money on property taxes.
If you live in California, solar rebates and incentives can help you reduce the cost of creating a solar property. One of the ways you can save money is through a solar tax credit known as the Investment Tax Credit (ITC). This credit will cover 26 percent of the sale price of your solar project. To qualify for this amount, your installation costs must be incurred during 2020.
In 2021, this tax credit covers 22 percent of each solar panel you add to your property. In 2022, the coverage drops to 10 percent. After 2022, the solar tax credit will end. If you are doing a solar installation at your business, you can use the Business Energy Investment Tax Credit instead. This solar tax credit gives you a rebate worth 10 percent of the cost of your solar panels.
If you are getting solar energy in California, you can claim as many solar panels as you want for this credit. Your solar panels can cost $1,000,0000 or $1,000. In both cases, the ITC tax credit will give you 26% (or 10% for the BEITC) of the project's cost back when you file your annual tax return.
You can definitely get tax rebates and incentives for installing solar panels, but do solar panels increase property tax? Normally, you would have to deal with a solar property tax. Thankfully, there is a solar tax exemption you can use to reduce your property taxes in California.
Section 73 of the California Revenue and Taxation Code covers the rules about property tax exclusions for solar homes. If you installed your solar panels between the start of 1999 to the end of 2024, you can get tax exemptions for having solar panels. The solar tax exemption is available for homes you own and live in as well as homes you own and do not plan on living in.
While you can avoid paying local property taxes on your solar panels, this exemption works for other types of renewable energy as well. You can also get a tax break for solar process heating systems, solar thermal electric systems, solar mechanical energy, solar and water heating systems. Unfortunately, solar heating systems for pools and hot tubs are not included in this exemption.
Through this exemption, you can exclude the following items from your property taxes:
On certain items, you can exempt just 75 percent of the item's cash value. If you have ducts and pipes that transmit solar energy and other energy sources, you can only exempt 75 percent of their full cash value. The same exemption rule is used for any other dual-use equipment as well.
For new construction projects, the property tax incentive is a new construction exclusion. When you install a solar energy system, it will not decrease or increase the property tax assessment on your real property. Normally, adding something of value to a property will increase your property taxes. However, with the new construction exclusion, solar systems are not assessed at all and your property taxes will not increase after you finish your solar project.
While your solar panels may be excluded from property taxes, they are still subject to a sales tax. In California, the sales tax is 7.25 percent. Individual jurisdictions and cities may add extra taxes to this amount.
Again, if you live in California, your solar panels will not increase your property taxes until at least 2025. Instead, you can install solar panels and immediately enjoy saving money on your energy bill each month. To learn about different solar systems and start your solar project, we invite you to speak with a specialist at Sullivan Solar Power today.