Arizona is one of the sunniest states in the country and has a corresponding amount of solar installed. It has the fourth largest amount of solar installed of any state, enough to power nearly 1.5 million homes.
Not all of that is installed on homes, but a lot of homeowners have adopted solar panels because it can reduce their energy bills. (Arizonans have average monthly electricity bills in the top ten among states.) Arizona has several key incentives that reduce the cost of installing home solar panels, including a state tax credit.
Here’s what you need to know about Arizona solar incentives.
(Note: Your eligibility can depend on your location, electric utility provider, income level, interest in battery storage, and more. This is not tax advice, and you should always consult a tax professional.)
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Federal Solar Tax Credit
Most Arizona residents are eligible to receive the federal solar tax credit, also called the Residential Clean Energy Credit. This benefit allows eligible homeowners to reduce the amount of federal income tax they owe by up to 30% of their solar panel installation cost.
In addition to the solar panels themselves, battery storage systems can also qualify for the Residential Clean Energy Credit. Therefore, many Arizona residents opt for battery storage when investing in solar energy.
Although the tax credit does not directly reduce the cost of your system, it does help offset the cost by reducing your total tax liability for the year you installed your system, and subsequent years, if you can’t claim the whole thing in one year. Tax credits are not a refund or a rebate. Rather, homeowners will need to have a federal tax liability first (i.e. they owe taxes) in order to benefit.
Arizona State Residential Solar Tax Credit
In addition to the Residential Clean Energy Credit, most Arizona residents are eligible for the state solar tax credit. The state tax credit is valued at 25% of the total system cost, up to a maximum of $1,000 in total.
Those who are eligible may claim the credit for up to five tax years, but the amount of the credit cannot exceed $1,000 total. Like the federal solar tax credit, homeowners will need to have a state tax liability in order to qualify for AZ’s solar tax credit.
Solar Equipment Sales Tax Exemption
In addition to a property tax exemption for solar, Arizona also offers a sales tax exemption for the retail sale of solar energy devices, and for the installation of solar energy devices by contractors.
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Energy Equipment Property Tax Exemption
A solar power installation has been shown to increase the value of your home. In Arizona, solar panels are eligible for a property tax exemption. If your solar panel system increases the value of your home, you may be exempt from paying taxes on that increased value.
In addition to solar panels, this property tax exemption extends to:
- Passive solar technology
- Solar water heaters
- Solar space heaters
- Solar thermal electric
- Solar thermal process heaters
- Solar pool heaters
- Other solar-powered appliances
For more detailed information on the property tax exemption in Arizona, please consult your tax advisor.
Net Metering in Arizona
Most of Arizona’s largest utilities offer net billing. Just like net metering, net billing allows you to earn credits toward your electricity bill for any excess solar energy generation you send back to the grid. Unlike net metering, the credit you earn for one kilowatt-hour sent to the grid is worth less than what you pay for one kilowatt-hour from the grid.
In Arizona, the three largest utilities — Arizona Public Service (APS), Tucson Electric Power (TEP), and Salt River Project (SRP) — provide a solar export credit at a rate approved by the Arizona Corporation Commission. The dollar amount varies by utility and changes each year. At the time of this writing, credits were between two and seven cents.
- Arizona Public Service (APS): approximately 6.8 cents/kWh
- Tucson Electric Power (TEP): approximately 5.7 cents/kWh
- Salt River Project (SRP): approximately 2.8 cents/kWh
The specifics for local electric cooperatives and municipal utilities may vary.
Getting Solar Panels in Arizona
Solar panels can take the bite out of your air conditioning bill each summer. The Arizona sun isn’t going anywhere, so installing solar panels could save you money for decades to come.
If you’re curious about what solar can do for you, check out Palmetto’s free solar savings calculator for a personalized estimate or contact a solar expert today.
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Frequently Asked Questions
Are solar panels worth it in Arizona?
Solar panels can definitely be worth it thanks to the abundant sunlight and higher than average electric bills. The best way to find out if solar panels are worth it for you is to reach out for a personalized quote from a reputable solar company.
Does Arizona have a state tax credit?
Yes. The credit is worth up to 25% of the cost of going solar or $1,000.
How does a solar tax credit work?
A solar tax credit counts against the taxes you owe or have paid in the year you install solar. Itis calculated based on the cost of your solar installation. The Arizona tax credit is 25% the cost up to $1,000. The federal tax credit is 30% with no dollar limit.
(Note: Your eligibility for incentives can depend on your location, electric utility provider, income level, interest in battery storage, and more. This is not tax advice, and you should always consult a tax professional.)
Andrew BlokWriter and EditorAndrew has worked as a journalist and writer for four years, over half of those dedicated to covering solar. He currently lives in Tucson, AZ, where you might run into him walking his dog and birding while dodging the heat. He has degrees in English education and journalism.
