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Tax Incentives for Solar Panel Installation in San Diego

Solar Panel Installation

The upfront cost of solar panels in San Diego might just be the reason you haven't made the switch yet. That's understandable, but what if there were ways to slash the initial cost by a considerable amount? Well, thanks to a variety of tax incentives, rebates, and credits offered at the federal, state, and local levels in San Diego, the cost of installing your solar panels can be significantly reduced.

Key Takeaways 

  • Federal ITC offers a 30% tax credit on solar installation costs.

  • California Solar Initiative (CSI) provides rebates based on system performance.

  • Net metering in San Diego allows earning credits for excess energy produced.

What Are Tax Incentives for Solar Panel Installation in San Diego?

Tax incentives for solar panel installation are like hidden treasures that make your switch to solar energy even more rewarding. But what exactly are these incentives, and why should you care? 

Tax incentives are financial benefits offered by the government to encourage you to adopt renewable energy solutions, like solar panels. These incentives can come in various forms—tax credits, rebates, and deductions—each designed to reduce the overall cost of installing solar panels on your home.

Think of them as a helping hand to make your transition to solar power more affordable and appealing.

Why are these incentives so important? Well, the initial cost of solar panel installation can be quite a hefty investment.

While the long-term savings are significant, the upfront costs might be daunting. This is where tax incentives come into play. They help offset these initial expenses, making solar power a financially viable option right from the get-go.

Federal Solar Tax Incentives 

When you're considering solar panel installation, the Federal Investment Tax Credit (ITC) is one of the most enticing incentives available. This credit can significantly reduce the overall cost of your solar energy system, making it a crucial factor in your decision-making process. 

The ITC allows you to deduct a substantial percentage of your solar installation costs from your federal taxes. For example, as of now, the ITC offers a 30% tax credit on the cost of installing solar panels.

So, if your installation costs $18,000, you can reduce your tax liability by $5,400. This is a direct reduction in the amount of taxes you owe, making it a powerful financial tool.

How to Claim the ITC

Claiming the Federal Investment Tax Credit (ITC) for your solar panel installation is a fantastic way to reduce your overall costs. Here’s a step-by-step guide to help you navigate the process easily and efficiently.

Step 1: Ensure You’re Eligible

First things first, make sure you meet the eligibility requirements. You need to:

  • Own your home (renters can’t claim the ITC).

  • Have a solar panel system installed at your primary or secondary residence in the United States.

  • Have the system installed and operational during the tax year for which you are claiming the credit.

Step 2: Keep All Documentation

Keep every piece of documentation related to your solar installation. This includes receipts, contracts, and any other proof of purchase and installation. You'll need these for your tax records and when filling out the necessary forms.

Step 3: Complete IRS Form 5695

To claim the ITC, you’ll need to fill out IRS Form 5695, which is the Residential Energy Credits form. Here’s how:

  1.  Download Form 5695: You can find this form on the IRS website or your tax software will provide it.

  2.  Fill Out Part I of the Form: This section is where you provide information about your solar panel system. You’ll need to enter the cost of the solar panel installation and any other qualifying energy-saving improvements.

  3.  Calculate Your Credit: On line 6 of Form 5695, you’ll multiply the total cost by 30% (or the applicable percentage for the tax year). This gives you the amount of your tax credit.

Step 4: Transfer the Credit to Your 1040

After you’ve filled out Form 5695, transfer the credit amount to your main tax form, Form 1040:

  1. Enter the Credit Amount: On Schedule 3 (line 5) of Form 1040, enter the credit amount calculated on Form 5695.

  2. Attach Form 5695 to Your Tax Return: When you file your taxes, make sure Form 5695 is included with your return.

Step 5: File Your Taxes

Submit your completed tax return with Form 5695 attached. If you’re using tax software, it will guide you through these steps and ensure everything is filled out correctly. Tax software can simplify the process and help you avoid errors. Most programs will walk you through Form 5695 step by step.

California State Solar Incentives

California State Solar Incentives

There are various California's state-specific incentives that can make a lot of difference when you're about to go solar. California has long been a leader in renewable energy, offering a range of incentives to help residents like you make the switch to solar more affordable and appealing. 

These incentives come from both state programs and local utility companies, aiming to make solar energy accessible to more homeowners. By tapping into these resources, you can significantly cut down on the initial expenses and start saving on your energy bills sooner.

California Solar Initiative (CSI)

One of the cornerstone programs in California’s solar strategy is the California Solar Initiative (CSI). The CSI was created to promote the installation of solar systems across the state, providing rebates to help offset the costs.

The program offers different levels of rebates depending on the size and efficiency of your solar system. Here's how it works:

  • Performance-Based Incentives (PBI): These incentives are available for larger systems and are paid based on the actual energy production of your solar panels over a five-year period. The more energy your system generates, the higher your rebate.

  • Expected Performance-Based Buydown (EPBB): For smaller residential systems, the EPBB provides an upfront rebate based on the expected performance of your solar panels. This calculation considers factors like system size, orientation, and shading.

To qualify for these incentives, your solar installation must meet specific criteria. For instance, it must be performed by a licensed contractor, and the equipment used must be on the CSI's list of eligible products.

Additionally, your home needs to undergo an energy efficiency audit to ensure that it meets the required standards.

Additional State Rebates and Incentives for Solar Installations

Beyond the CSI, there are several other state rebates and incentives you can take advantage of:

  1. Net Energy Metering (NEM): California's NEM policy allows you to receive credits on your electricity bill for the excess energy your solar panels produce. This means that during sunny days when your panels generate more power than you use, the surplus is sent back to the grid, and you earn credits. These credits can then be used to offset your energy costs during times when your panels aren't producing as much energy, like at night or on cloudy days.

  2. Self-Generation Incentive Program (SGIP): The SGIP provides rebates for installing energy storage systems, such as batteries, alongside your solar panels. These batteries store excess solar energy for use when the sun isn't shining, further enhancing your energy independence and savings.

  3. Property Tax Exclusion for Solar Energy Systems: California offers a property tax exclusion for solar energy systems, meaning the added value from your solar installation won’t increase your property taxes. This can result in substantial savings over the years, making solar even more attractive.

Local San Diego Solar Incentives

Living in San Diego, you’re in a prime spot to take advantage of some incredible solar incentives. Local Utility Companies like San Diego Gas & Electric (SDG&E) offer additional incentives and rebates to encourage you to install solar panels and switch to renewable energy.

SDG&E’s Net Energy Metering program allows you to receive credits on your electricity bill for the excess energy your solar panels produce. During sunny days, when your panels generate more power than you use, the surplus energy is sent back to the grid, earning you credits that can offset your electricity costs during less sunny periods. 

If you’re also considering solar water heating systems, SDG&E offers rebates to help cover the installation costs. This can be a great addition to your solar energy setup, further reducing your utility bills.

With these incentives, you’re not just cutting down on your initial investment but also ensuring long-term financial benefits. Remember, these tax incentives are not permanent and can change based on government policy.

Plus, with the rising costs of electricity, the sooner you switch to solar, the more you save in the long run. So, don’t wait—seize the opportunity now to maximize your savings.  and take full advantage of these fantastic opportunities.

If you're ready to take the next step, get a free solar quote to see how much you can save and how quickly you can benefit from these incentives.


What are the main tax incentives for solar panel installation in San Diego?

San Diego offers several tax incentives for solar installations, including the Federal Investment Tax Credit (ITC), which provides a 30% tax credit on installation costs. There are also state incentives like the California Solar Initiative (CSI) and local utility rebates from SDG&E, which help to further reduce the overall cost of going solar.

Are there any state-specific incentives for solar in California?

What local incentives are available in San Diego for solar installations?

How does net metering work in San Diego?

What financing options are available for solar panel installation?

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