The California State Board of Equalization (BOE) has issued new guidance clarifying crucial details regarding the active solar energy system new construction property tax exclusion under Section 73 of the California Revenue and Taxation Code. This update is critical for solar developers and tax equity investors involved in current or planned projects across the state.
Key Takeaways
- Completion Deadline: The exclusion is valid for any active solar energy system completed before January 1, 2027
- Projects in Progress: Systems under construction as of January 1, 2026, will qualify if completed by the January 1, 2027, deadline
- No Early Start Required: Construction does not need to have begun before January 1, 2025; completion by January 1, 2027, is the only requirement
Background on Section 73
Section 73 provides a property tax exclusion for the new construction of active solar energy systems. This exclusion has been extended multiple times over the years but is currently set to sunset on January 1, 2027, unless further extended by the legislature. The exclusion prevents an increase in property tax assessments due to the installation of qualifying solar energy systems, offering significant tax relief for developers and investors.
Key Clarifications in the BOE Guidance
Recent discussions raised concerns about whether construction on solar energy systems needed to begin before the January 1, 2025, lien date to qualify for the exclusion. The BOE’s new guidance clarifies that this is not the case. Here are the three key points from the BOE’s update:
- Completion Deadline for Exclusion: The exclusion is valid for any active solar energy system completed before January 1, 2027. The crucial requirement is that the system is operational by this date to qualify for the exclusion, regardless of when construction began.
- Eligibility for Projects in Progress: Projects that are under construction as of January 1, 2026, will still qualify for the exclusion if they are completed before the January 1, 2027, sunset date. However, construction that begins after January 1, 2026, must also be completed by the end of 2026 to benefit from the exclusion.
- No Need for Early Start: The BOE confirms that there is no requirement for construction to have started before the January 1, 2025, lien date. The only stipulation is that the system must be fully completed by January 1, 2027, to receive the tax benefits.
Implications for Solar Developers and Investors
This clarification is crucial for those planning, developing, or currently constructing solar projects in California. It provides certainty and flexibility, ensuring that as long as projects are completed before the January 1, 2027, deadline, they will qualify for the tax exclusion. Developers and investors should carefully review their project timelines to ensure alignment with these guidelines.
Next Steps
Given the substantial tax savings that can be realized under Section 73, it is essential for stakeholders to ensure their projects meet the BOE’s requirements. The timing of construction has long-term tax implications for solar energy projects in California that need to be carefully considered.
DMA’s team of experts can assist with modeling these tax implications based on your specific construction timelines to ensure you maximize your potential tax benefits.
| This website content should be used for general informational purposes only, and not as a substitute for consultation with professional tax, legal, or other competent advisors. Before making any decision or taking any action based upon information contained on this website, you should consult with a DMA professional. |
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To discuss your project and ensure that you’re on track to meet the BOE’s guidelines, contact DMA’s property tax incentives experts for personalized assistance.