Active Solar Energy System Exclusion – Frequently Asked Questions (FAQs)

General Information

Are solar heating panels installed on a roof to heat swimming pool water considered an active solar energy system and excluded from new construction assessment?

No. Revenue and Taxation Code section 73(b)(2) specifically states that “active solar energy system” does not include solar swimming pool heaters or hot tub heaters. An active solar energy system must be a system that uses solar devices to provide for the collection, storage, or distribution of solar energy (for example, produces electricity or heats a hot water heater).

How does the new construction exclusion for solar energy systems work?

Generally, when something of value is physically added to real property, the addition is assessed at current market value and this value is added to the existing base year value of the real property. When an active solar energy system is installed, it is not assessed, meaning that the existing assessment will not increase.

Leases and Ownership

A homeowner installed an active solar energy system last year and financed it with a capital lease. The leasing company was advised to report the system as machinery and equipment on their annual BOE-571-L, Business Property Statement, and the homeowner subsequently received a tax bill. Is this correct?

No. The system is excluded whether it is leased or owned. The real property appraiser in the Assessor's office should coordinate information with the business property auditor-appraiser when a permit for construction is issued. Contact the Assessor's office for more information.

If an active solar energy system is installed on an existing structure (store, shopping mall, parking structure, office building, etc.) and the ownership of the active solar energy system is vested in a multi-member LLC, is the new construction exclusion still applicable for this installation, or is the active solar energy system considered to be assessable business property to the LLC? Does it matter if the active solar energy system will be powering general business occupancy requirements or specialized fixtures?

The active solar energy system would be classified as a fixture (real property) if it meets the tests of Property Tax Rule 122.5, and would be excluded from the definition of new construction if it meets the definitions of Revenue and Taxation Code section 73. In which case, it would not be considered assessable business property. Ownership of the system is not a condition of exclusion. Further, there are no specific use requirements for the energy produced by the system to qualify for the exclusion.

Residency Requirement

The corporate headquarters of a company is in New Jersey, but the corporation owns a building in Los Angeles, upon which was installed an active solar energy system. Is the new construction exclusion limited to California residents or entities?

No. There are no residency provisions for the owner of a solar energy system.

Initial Purchaser

In February 2008, I purchased a newly constructed home with an integrated solar energy system. The completion of construction was July 3, 2007. Can I claim an exclusion as the initial purchaser?

No. Only qualifying improvements completed on or after January 1, 2008, are eligible for the exclusion.

If a builder is fully assessed for a newly constructed home on the lien date (January 1) following the date of completion of new construction, and the initial purchaser buys the property after the lien date, is the initial purchaser eligible for the active solar energy new construction exclusion?

No. Since the builder was assessed on the lien date following the date of completion of the new construction, the subsequent purchaser is not eligible for the solar energy system new construction exclusion.

Example: A home with an active solar energy system is completed on November 15, 2009, and the new construction of the home is 100 percent complete on the lien date for purposes of determining the assessed value of the property for the 2010-2011 regular roll. If the home sold on or before December 31, 2009, the initial purchaser would be eligible for the new construction exclusion for the solar energy system. If the home did not sell until after the lien date, for example January 2, 2010, the initial purchaser would not be eligible for the new construction exclusion for the solar energy system because the builder would receive the exclusion as of the lien date.

Solar Facilities

A solar facility is not operating and is still in a construction phase when the developer sells the facility. Could the new buyer claim a new construction exclusion?

The “first buyer exclusion” allows the solar exclusion to be conveyed to the first buyer of a building incorporating an active solar energy system, so long as the owner-builder doesn't intend to occupy the property and hasn't received the solar exclusion, and so long as the buyer purchases the building prior to it becoming subject to assessment and files the appropriate claim form. The owner-builder may also receive an exclusion for construction in progress (CIP), which does not preclude the availability of the exclusion to the first buyer. To receive the “builder's exclusion” from the initial supplemental assessment for the completion of new construction, the builder must meet the requirements of Revenue and Taxation Code section 75.12, including notifying the Assessor, prior to or within 30 days of the commencement of construction, that they do not intend to occupy or use the property.

What if, in the above scenario, the facility is owned by a legal entity and that legal entity sells its controlling interest?

If a controlling interest of a legal entity owning solar property is sold prior to completion of construction, the buyer of the legal entity interests has control under Revenue and Taxation Code section 64(c), and thus the property owned by the entity changes ownership. As the property is still CIP, the buyer is eligible to claim the solar exclusion for CIP. Once construction is complete, the property is assessed at its fair market value, and the buyer is eligible to receive the solar exclusion.

If a solar facility comes online in July 2016 and the developer sells its controlling interest in November 2016, can the new buyer claim a new construction exclusion for all the assets placed in service for the January 1, 2017, lien date?

The solar exclusion would be available to the buyer who purchases the developer's controlling interest in a legal entity owning solar property, if the builder's exclusion is in place (if the developer notified the Assessor timely that she doesn't intend to occupy/use the property or if the property meets the criteria applicable to the development of residential subdivisions).

Filing

Recently, I added an active solar energy system to a home that I have owned for 10 years. Do I need to complete any form or notify the Assessor that I have installed an active solar energy system to receive the exclusion?

No. There is no form or filing required to receive the exclusion. The Assessor usually discovers the installation of the active solar energy system by means of the building permit that was taken out. If you think you have been assessed for the installation of an active solar energy system, you should contact your County Assessor. You may find your Assessor's contact information by visiting the Listing of County Assessors page.

Last year, I purchased a new home from a builder that included an active solar energy system. The developer sent me a form called the “Initial Purchaser Claim for Solar Energy System New Construction Exclusion.” What is the purpose of this form and where do I send it?

The completed form should be mailed to your County Assessor. A list of County Assessors is posted on our website. Under certain circumstances, as the initial purchaser of a new building, your new base year value may be reduced by the value of the active solar energy system, less any rebates or tax credits received. Your builder will be able to provide you with the value of the system and any rebates or tax credits that they received.