Coming Soon: A Major Change for California Solar
Historically, California's active solar energy system exclusion has prevented the value added by qualifying solar energy systems from increasing a property's assessed value for tax purposes. The exclusion is currently scheduled to sunset on January 1, 2027. California lawmakers have introduced legislation that would extend the active solar energy system exclusion beyond its current sunset date. However, as of this writing, no extension has been enacted, so the exclusion remains scheduled to expire on January 1, 2027.
The details vary from county to county, but for many California homeowners, there’s still time to have your solar equipment installed before the deadline and qualify for the property tax exclusion. You’ll need to get started on your project now to have the installation completed by the end of the year.
What Changed?
California Assembly Bill 2389 would extend the exclusion for certain qualifying customer-sited solar energy systems to January 1, 2032. However, the bill has not become law, so homeowners should continue planning around the current January 1, 2027 deadline.
How the Solar Property Tax Exemption Works
Most permanent home improvements can increase assessed property value, which can, in turn, increase annual property taxes. Historically, California has treated solar energy systems differently by excluding their value from assessment to serve as a key, long-term incentive for increasing renewable energy adoption. This exclusion applies to systems that meet the legal definition of an active solar energy system. The BOE gives the legal definition of an active solar energy system:
“An active solar energy system must be a system that uses solar devices to provide for the collection, storage, or distribution of solar energy”
Homeowners who qualify before the sunset date generally keep the exclusion until the property changes ownership. To qualify under the current rules, the solar energy system generally must be completed before the exclusion sunsets. Because permitting, inspections, and utility approvals can take months, homeowners should begin the process well before the deadline.
If you already own a home with a qualifying solar system, the expiration of the exclusion does not mean your system will suddenly become taxable. In general:
What Could the Added Taxes Look Like?
If the exclusion sunsets as scheduled, qualifying residential solar installations completed after January 1, 2027, may be assessed as new construction for property tax purposes. However, the state has not provided a single math formula for how to calculate a solar system's market value. Assessment practices may vary among counties because assessors determine taxable value using applicable state law and local assessment practices.
California normally taxes property at around 1% plus local voter-approved assessments, which often bring the total to about 1.1%. Here’s a common example:
System value: $30,000
Property tax rate: 1.1%
Additional property taxes: $330
It’s important to note that this amount may vary from county to county due to assessment methodology, even if the systems are identical. Some implementation details remain unclear, and assessment practices may vary among California counties.
Why Tax Estimates Vary
One challenge is that there is no universally accepted way to determine the taxable value of a solar system. Some assessors may calculate its value based on what the homeowner paid to install it, while others may calculate its value based on how much it increases the property's overall market value. Until counties establish consistent assessment practices, homeowners may see different outcomes depending on where they live.
Why Waiting Could Cost Homeowners More
As we discussed earlier, simply having the contracts signed will not qualify homeowners for the exemption. In order to qualify, the system must pass final building inspection and receive Permission to Operate (PTO). Based on Citadel Roofing & Solar's project experience, average timelines often range from 60 to 120 days, barring significant delays. There are several steps that can cause delays, including (but not limited to):
Local permitting reviews
Inspection scheduling
Utility connection processing
PTO approvals
It’s important to note that delays are often outside of the installer’s direct control. Industry leaders are encouraging homeowners to begin conversations now because waiting until late summer or fall could create scheduling challenges. Another thing to consider is that as people learn about the deadline, they may rush to schedule their installations, causing demand spikes and backlogs.
The expiration of the California active solar energy system exclusion has implications that go beyond increased property taxes. The exclusion was originally put in place as a renewable energy adoption incentive, and the added property tax may discourage some potential solar adopters. Even without tax incentives, solar is an investment that saves the homeowner energy costs and reduces their reliance on a grid that already seems to be stretched too thin. Here are a few of the benefits of installing a solar system to power your home:
Many homeowners evaluate solar over decades, making policy changes an important part of the financial equation. Even if the exclusion expires, the long-term savings and energy benefits of solar remain important factors for homeowners considering an installation.
These are the prudent steps to take now, at a glance:
It’s Time to Act
The California active solar energy system exclusion is set to sunset at the end of 2026, but there’s still time for homeowners to take advantage of this tax incentive. It’s a move that will continue to pay off until you sell your home. Because permitting, inspections, and utility approvals can take time, homeowners should avoid waiting until the last minute to begin the process.
Contact Citadel Solar & Roofing today to schedule your consultation.
Will existing solar owners lose their exemption? No. Systems that qualified for the exclusion before the sunset date generally remain excluded until the property changes ownership.
What counts as “final permit approval”? Homeowners should confirm requirements with their installer and local jurisdiction. Systems generally must be operational and in service before the deadline. Some uncertainty remains regarding final utility approval requirements.
How much could property taxes increase? No statewide assessment method has been announced, so we don’t have a precise answer. California normally taxes property at about 1.1%. That figure includes local voter-approved assessments. As a simplified example, a $30,000 system assessed at a 1.1% property tax rate would add approximately $330 in annual property taxes.
Will all counties tax solar the same way? Probably not. County assessors may use different valuation methods when determining the taxable value of solar installations. As a result, the tax impact could vary depending on where you live.
How long does a typical solar project take? Average timelines often range from 60 to 120 days. Homeowners considering solar before the deadline should build in extra time for unexpected delays due to permitting, inspections, utility processing, and project complexity.
What are the most common causes of project delays? Local permitting reviews, inspection scheduling delays, utility interconnection processing, permission-to-operate approvals, and high seasonal demand that can increase installer backlogs and approval timelines.
Does signing a solar contract before December 31 guarantee the exemption? No. The system generally needs to be installed and placed in service before the deadline. Simply signing a contract or making a deposit may not be enough to qualify for the property tax exclusion.
Could battery storage systems be affected by the expiration of the exemption? Possibly. It's still unclear how battery storage systems will be assessed once the exemption expires. If you're considering adding a battery, it's worth watching for future guidance from state and local authorities.
What happens if my project is delayed by permitting or utility approvals? If the delay prevents your system from being installed and placed in service before the deadline, your installation may not qualify for the property tax exclusion. Permitting, inspections, and utility approvals may take longer than expected, so it’s a good idea to begin the process as early as possible.
Could future legislation bring back the solar property tax exemption? Possibly. California lawmakers have extended the active solar energy system exclusion in the past, and future legislation could be introduced to reinstate it or continue the exclusion. However, no extension has been enacted at this time.