Can You Deduct Plug-In Solar on Your Taxes in California?

By Lawrence Do, EA.

California is getting closer to allowing plug-in solar systems for residential use. With SB 868 passing the California Legislature, homeowners and renters may soon have a much simpler way to generate a small amount of solar power without installing a traditional rooftop system.

That brings up a tax question I expect to hear more often:

If I buy a plug-in solar system, can I deduct it on my taxes?

For most homeowners buying a system for personal use in 2026, the answer is no.

There are, however, different rules to consider when the equipment is used for a business or rental property.

What Is Plug-In Solar?

Plug-in solar is essentially a small solar system that connects to a home’s electrical system through an outlet.

Instead of installing a large rooftop system, the homeowner might have a few solar panels connected to an inverter. The electricity produced by the system can offset some of the electricity the home is using during the day.

SB 868, also known as the Plug and Play Solar Act, establishes rules for these systems in California. The legislation generally applies to qualifying systems with a maximum combined AC output of 1,200 watts per dwelling.

The equipment must meet applicable safety requirements, including protection that prevents the system from energizing utility lines during an outage.

As of August 27, 2026, SB 868 has passed the Legislature but is still awaiting action by Governor Gavin Newsom.

What About the 30% Federal Solar Tax Credit?

This is probably where most of the confusion will come from.

In prior years, homeowners who installed qualifying residential solar could generally claim the Residential Clean Energy Credit under Internal Revenue Code Section 25D.

The credit was generally 30% of qualifying costs.

That credit is no longer available for expenditures made after December 31, 2025.

So if you purchase a plug-in solar system for your home in 2026, you should not assume that you will receive a 30% federal tax credit.

For example, if you spend $1,500 on a plug-in solar system in 2026, you generally cannot claim a $450 Residential Clean Energy Credit under Section 25D.

Is the Cost Tax Deductible Instead?

Generally, no.

If the system is purchased for your personal residence and used for personal purposes, the cost is generally a personal expense.

It’s also important to distinguish between a tax deduction and a tax credit.

A deduction reduces taxable income. A credit reduces the actual tax owed.

The old residential solar incentive was a tax credit. It was not a deduction.

With that credit ending for expenditures after 2025, there generally isn’t a federal income tax deduction that takes its place for homeowners purchasing solar for personal use.

Is There a California Solar Tax Credit?

California does not conform to the federal Residential Clean Energy Credit under Section 25D.

So there isn’t a corresponding California income tax credit that gives homeowners the same 30% benefit.

There may still be utility rebates or other energy programs available depending on where you live. Those are separate from claiming a deduction or credit on your California income tax return.

What If I Bought Solar in 2025?

Timing can matter.

Under the federal rules, residential clean-energy expenditures generally are treated as made when the original installation is completed.

If you purchased solar equipment near the end of 2025 but didn’t complete the installation until 2026, don’t assume that paying for the equipment in 2025 automatically qualifies you for the credit.

This is an area where I would look at the specific facts before claiming anything on the return.

What If the Plug-In Solar Is for a Business?

This is a different analysis.

The expiration of the personal residential solar credit doesn’t mean solar equipment used in a business has no tax benefit.

If solar equipment is legitimately purchased and used in a trade or business, it may be treated as a business asset. Depending on the circumstances, the cost may need to be capitalized and recovered through depreciation.

There may also be other federal energy provisions that apply to business property.

The important point is that personal use and business use are not treated the same way.

Having a home office also doesn’t automatically make the entire solar system a business deduction. You need to look at how the property is actually being used and determine the appropriate business allocation, if any.

What About a Rental Property?

A rental property is also different from a personal residence.

If a landlord purchases solar equipment for a rental property, the equipment may be a capital expenditure associated with an income-producing property.

Depending on the facts, the cost may be recovered through depreciation rather than deducted immediately.

Federal and California depreciation rules can also differ, so the California treatment should be reviewed separately.

Does Plug-In Solar Still Make Sense Without the Tax Credit?

It can.

The appeal of plug-in solar is that the initial investment can be much smaller than a traditional rooftop solar installation.

If a system costs $1,000 or $1,500, the more useful calculation may simply be how much electricity it produces each year and how long it takes those savings to recover the purchase price.

That’s especially relevant in California, where electricity can be expensive.

In other words, don’t buy a plug-in solar system in 2026 because you expect a 30% federal tax credit. Look at whether the system makes financial sense without the credit.

Bottom Line

For most California homeowners purchasing plug-in solar for personal use in 2026, the cost generally isn’t deductible on their federal or California income tax return.

The old 30% federal Residential Clean Energy Credit is also no longer available for expenditures made after December 31, 2025.

The answer can be different when solar equipment is purchased for a business or rental property. In those situations, depreciation and other business tax provisions may apply.

SB 868 could make small plug-in solar systems much easier to use in California, but easier installation doesn’t change the basic tax rules. Before claiming a deduction or credit, make sure you’re looking at the rules that apply to the year the equipment was purchased and placed in service.

Do Tax & Advisory Group, Inc.

This article is for general informational purposes only. Tax treatment depends on the specific facts and circumstances of each taxpayer.