California does not offer state tax credits for energy efficiency improvements, and it never has. The Franchise Tax Board does not conform to the federal energy credits either, so there is no line on your California return where a heat pump, solar system, or new insulation reduces your state tax bill.1State of California Franchise Tax Board. Summary of Federal Income Tax Changes What California offers instead is rebates: direct discounts and reimbursements that cut what you pay for the equipment itself. For 2026, those rebates are where the money is.
Why California Has No State Energy Credit
California channels its energy efficiency incentives through rebate programs rather than the tax code. The Franchise Tax Board has confirmed the state does not conform to either the federal Energy Efficient Home Improvement Credit (IRC Section 25C) or the Residential Clean Energy Credit (IRC Section 25D).1State of California Franchise Tax Board. Summary of Federal Income Tax Changes The California Public Utilities Commission oversees ratepayer-funded efficiency programs run through the state’s investor-owned utilities, and the California Energy Commission administers federal rebate dollars from the Inflation Reduction Act.2California Public Utilities Commission. Energy Efficiency The practical difference: a rebate reduces what you pay now; a tax credit would have reduced your tax bill later. For California residents, only the first exists.
The Federal Credits Ended After 2025
The two federal energy credits California homeowners could previously claim on their federal returns were terminated by the One Big Beautiful Bill Act effective December 31, 2025. The Section 25C credit covering 30% of costs for heat pumps, insulation, windows, doors, and energy audits (with annual limits of $1,200 for most improvements and $2,000 for heat pumps and heat pump water heaters) applied only to property placed in service through that date.3Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit The Section 25D credit covering 30% of costs for solar panels, battery storage, and geothermal systems was terminated for expenditures made after the same date.4Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
If you completed qualifying improvements during 2025 and have not yet filed your federal return, you can still claim those credits for 2025. For anything installed in 2026 or later, the credits are gone. That makes the rebate programs below the primary source of financial help.
HEEHRA: The Biggest Rebate Available Now
The Home Electrification and Appliance Rebates program (HEEHRA) is the largest active rebate program for California homeowners. It is funded by the Inflation Reduction Act, managed by the California Energy Commission, and delivered through TECH Clean California-certified contractors.5TECH Clean California. TECH Public Reporting HEEHRA Rebates The program is income-qualified and focused on electrification upgrades that replace natural gas equipment.
For single-family homes, rebate amounts depend on household income relative to area median income (AMI):
- Households below 80% AMI: up to $8,000 for a heat pump HVAC system.
- Households between 80% and 150% AMI: up to $4,000 for a heat pump HVAC system.
Multifamily properties can receive up to $14,000 per unit, covering heat pumps for space heating and cooling, heat pump water heaters, cooktops, ranges, ovens, heat pump clothes dryers, and electrical panel and wiring upgrades.6California Energy Commission. Inflation Reduction Act Residential Energy Rebate Programs
Start by hiring a TECH Clean California-certified contractor. The contractor handles the rebate paperwork and applies the discount at the point of sale, so you don’t pay full price and wait for reimbursement.7ENERGY STAR. Home Electrification and Appliances Rebate Program Funds operate on a first-come, first-served basis.
The HOMES Program Is Not Yet Live
The Home Efficiency Rebates (HOMES) program, the second major IRA-funded rebate program, is not yet available in California as of mid-2026.6California Energy Commission. Inflation Reduction Act Residential Energy Rebate Programs California received $291 million in federal HOMES funding that will eventually be split between two sub-programs:
- Equitable Building Decarbonization Direct Install: no-cost energy retrofits for low-income households, requiring at least 20% modeled energy savings.
- Pay for Performance: rebates for whole-home retrofits open to all income levels, with enhanced amounts for low-income households, where project portfolios must achieve at least 15% measured energy savings.
The CEC has not announced rebate amounts or a launch date. Products in HOMES and HEEHRA generally must meet ENERGY STAR criteria in effect on the installation date for heating, cooling, and water heating equipment.8ENERGY STAR. Home Efficiency Rebates (HOMES) Program Check the CEC’s program page periodically; once HOMES opens, it will add significant rebate dollars on top of HEEHRA.
Utility Rebates and Low-Income Weatherization
Separate from the IRA programs, California’s investor-owned utilities (PG&E, SCE, SoCalGas, and SDG&E) run their own rebate programs for energy-saving equipment. These are ratepayer-funded and overseen by the CPUC.9California Public Utilities Commission. CPUC’s Role in Energy Efficiency Programs Rebate amounts and eligible equipment change often, so pull the current list from your utility’s website before buying anything. Utility programs sometimes set efficiency thresholds above the ENERGY STAR minimum; your contractor should confirm equipment eligibility before you commit.
Lower-income households may also qualify for the CPUC’s Energy Savings Assistance (ESA) program, which provides no-cost weatherization through the investor-owned utilities. Covered services include attic insulation, energy-efficient refrigerators and furnaces, weatherstripping, caulking, and envelope repairs that reduce air infiltration.10California Public Utilities Commission. Energy Savings Assistance If you qualify for HEEHRA by income, you likely qualify for ESA as well.
SGIP for Battery Storage
With the federal Section 25D credit no longer available to offset battery storage, California’s Self-Generation Incentive Program (SGIP) matters more than it did a year ago. SGIP provides incentives for installing battery storage, with multiple budget categories at different rates. For 2025, the Residential Solar and Storage Equity category offered $1,100 per kilowatt-hour for storage and $3,100 per kilowatt for solar, with reservations opening in June 2025.11California Public Utilities Commission. Self-Generation Incentive Program Several SGIP budget categories were designated as available through 2025, so some may have closed or been renewed since. Applicants with reserved funds have one year to complete installation and meet program requirements, including enrollment in a qualified demand response program. Check the SGIP metrics page for current budget availability before starting a project.
What Qualifies Across These Programs
Eligible improvements overlap substantially across HEEHRA, utility rebates, and ESA. The most commonly covered upgrades are heat pumps (both air-source for heating and cooling and heat pump water heaters), building envelope work (attic, wall, and floor insulation, air sealing, weatherstripping, and high-efficiency windows and doors), electric appliances (induction cooktops, ranges, and heat pump clothes dryers, particularly through HEEHRA), and the electrical infrastructure needed to support new electric equipment (panel upgrades and wiring, covered under HEEHRA for multifamily and in some cases single-family). Heat pumps are the highest-value rebate item across nearly every program.
How Rebates Affect Your Tax Return
Rebates from the IRA-funded programs are not taxable income. IRS Announcement 2024-19 established that HEEHRA and HOMES rebates are treated as purchase price adjustments, reducing what you’re considered to have paid for the equipment rather than counting as income received.12Internal Revenue Service. Announcement 2024-19 State and local governments issuing these rebates generally do not report payments to purchasers on Form 1099.
The trade-off is that your cost basis in the equipment drops by the rebate amount. A $4,000 point-of-sale discount on an $8,000 heat pump leaves you with a $4,000 basis. For most homeowners this never matters, since you won’t sell the heat pump at a gain. For rental property owners or anyone claiming depreciation, the reduced basis matters.
Utility and other non-IRA incentives follow a different analysis. The IRS treats state energy efficiency incentives as not reducing your qualified expenses unless they qualify as a true rebate or purchase-price adjustment under federal tax law. States sometimes label incentives as “rebates” when they don’t meet that federal definition, which could mean they’re includable in gross income.13Internal Revenue Service. Energy Efficient Home Improvement Credit In practice, utility-funded efficiency rebates have historically been treated as purchase price reductions and not taxed, but watch for a Form 1099 if you receive a large incentive from a non-utility government source.
On the California return itself, there is usually nothing to add or subtract related to energy improvements. You file Form 540 or 540NR starting from your federal adjusted gross income and use Schedule CA for state-specific adjustments.1State of California Franchise Tax Board. Summary of Federal Income Tax Changes Since California doesn’t conform to the federal energy credits and those credits don’t flow through AGI, no California adjustment is needed for the credit itself. If a rebate was included in your federal gross income, it would carry through to your California return unless the FTB provides specific guidance to exclude it. Keep rebate documentation, contractor invoices, and equipment specifications for at least four years.
A Note for Commercial Buildings
Business owners have a narrow remaining window for the federal Section 179D energy efficient commercial building deduction, which is scheduled to terminate for property whose construction begins after June 30, 2026.14Department of Energy. 179D Energy Efficient Commercial Buildings Tax Deduction It applies to lighting, HVAC, and envelope improvements achieving at least 25% energy savings against a reference standard. For 2025, the deduction ranged from $0.58 to $1.16 per square foot (and $2.90 to $5.81 per square foot for projects also meeting prevailing wage and apprenticeship requirements), increasing by $0.02 for each percentage point above 25%. California does not conform to Section 179D at the state level, so this is a federal benefit only. Beginning construction before the June 30, 2026 deadline preserves eligibility.