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Arizona Solar Tax Credit & Incentive Guide for 2022

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Arizona solar incentives
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There’s never been a better time to go solar in Arizona—and we’re not just saying that because we’re a solar company. Not only does Arizona have more sun exposure than any other state, but it also ranks second for the most residential solar installations in the United States.

Moreover, the Grand Canyon State is one of only a handful of states that offer a state tax credit on top of the federal solar tax credit. Those are just two of the several solar incentives and rebates available to Arizona residents that can help offset the cost of a solar panel system.

(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.)

Overview of How Solar Works in Arizona

Before we get into the incentives, here’s a quick overview of how solar works in Arizona. Most residential solar installations are eligible for their utility’s net billing program. Similar to net metering, net billing allows you to earn credits toward your electricity bill for any excess solar energy generation you don’t use.

In a net billing setup, any extra solar-generated electricity that can’t immediately be used in your home or stored in a battery gets shared with the larger electric grid. Because you offset the need for utility companies to create that amount of electricity, they’ll compensate you for it via bill credits. Not only can you become your own clean energy provider when you go solar, but you can also get compensated to spread solar energy to others!

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 compensation rate approved by the Arizona Corporation Commission. The dollar amount varies by utility and may change slightly over time:

  • Arizona Public Service (APS): approximately 9.4 cents/kWh
  • Tucson Electric Power (TEP): approximately 7.8 cents/kWh
  • Salt River Project (SRP): approximately 2.8 cents/kWh

The specifics for local electric cooperatives and municipal utilities may vary.

Now that you understand how solar works in your state, let’s dig into the financial incentives available to Arizona residents.

List of 2022 Arizona Solar Incentives & Tax Credits

Federal Solar Investment Tax Credit (ITC)

Most Arizona residents are eligible to receive the Federal Solar Investment Tax Credit, also called the Solar ITC. This benefit allows eligible homeowners to reduce the amount of tax they owe by up to 26% of their solar panel installation cost from their federal income taxes.

In addition to the solar panels themselves, battery storage systems can also qualify for the ITC when paired with solar. 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 applicable. It’s important to note that 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.

To learn more about the ITC, read our article on Everything You Need to Know About the Federal ITC.

Arizona State Residential Solar Tax Credit

In addition to the Federal ITC, 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.

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. This simply means that, 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.

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. 

Let Us Help You Go Solar in Arizona

Are you interested in going solar? Click Here to find out how much you can save with a rooftop solar energy system on your Arizona home. The energy experts at Palmetto can help you navigate the process of going solar in Arizona, and help you make the most out of your investment in clean energy.

For more information on what it’s like going solar in Arizona, visit our Guide to Owning Solar Panels in Arizona.

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