Phoenix, AZ Solar Panels

Homeowners who install a battery energy storage system can claim a 30% federal Investment Tax Credit (ITC) on the full cost of the battery, provided it has a minimum capacity rating of at least 3 kWh. This credit applies whether the battery is paired with solar panels or installed as a standalone system, and it directly reduces your federal income tax liability dollar-for-dollar. For a typical home battery like a Tesla Powerwall or similar system, this can translate to thousands of dollars in savings.

Unlike the residential solar ITC — which was eliminated by the “One Big Beautiful Bill” signed in July 2025 — the battery storage credit remains available through 2032 at the full 30% rate. It then steps down to 26% in 2033 and 22% in 2034 before expiring entirely in 2035. This gives Phoenix homeowners a meaningful window to add battery storage and still capture significant federal savings.

To claim the credit, file IRS Form 5695 with your federal tax return for the year the system is placed in service. If the credit exceeds your tax liability in a given year, the unused portion can be carried forward to future tax years. You must own the battery system outright — leased systems do not qualify.

Arizona homeowners who purchase a new solar energy system — including photovoltaic (PV) systems, solar water heaters, solar pool heating, and solar batteries — can claim a state income tax credit equal to 25% of the total system cost, up to a lifetime maximum of $1,000. This credit is claimed on Arizona Form 310 and is applied directly against your state income tax liability, reducing what you owe dollar-for-dollar.

To be eligible, you must own the system outright — solar leases and power purchase agreements (PPAs) do not qualify. The system must also come with at least a two-year warranty on the panels and a one-year warranty on other equipment such as batteries and EV chargers. The $1,000 cap is a lifetime limit per taxpayer (the program has been in place since 1995), so if you have claimed this credit before, your remaining available credit may be reduced.

If the credit exceeds your Arizona tax liability in the year it is claimed, the unused portion can be carried forward for up to five years. For more information or to download Form 310, visit the Arizona Department of Revenue website or the Governor’s Office of Resiliency Clean Energy Hub at resilient.az.gov.

When you purchase a qualifying solar energy system in Arizona, you pay zero state sales tax on the equipment. This exemption covers photovoltaic panels, inverters, batteries, mounting hardware, and other eligible solar components. Arizona’s state sales tax rate is 5.6%, so on a $20,000 system, this exemption alone saves you more than $1,100 — and on larger systems, savings can exceed $1,600 or more.

The exemption applies to residential, commercial, and general public installations with no maximum cap on savings. Arizona removed its previous $5,000 savings cap in 2006, meaning the full purchase price of your system is exempt regardless of system size. Eligible technologies include photovoltaics, solar water heating, solar space heating, solar thermal electric, passive solar, wind, solar pool heating, and daylighting systems.

You do not need to take any special action to claim this exemption — your solar installer is responsible for registering with the Arizona Department of Revenue and applying the exemption at the point of sale. For questions, contact the Arizona Department of Revenue Tax Assistance line at (602) 255-3381 or (800) 352-4090.

Installing solar panels typically increases the market value of your home, but in Arizona, that added value is completely excluded from property tax assessments. This means residents of Phoenix can enjoy the full financial and energy benefits of going solar without paying a single dollar more in property taxes — a significant long-term savings advantage that compounds every year you own the system.

The exemption applies to a wide range of eligible technologies including solar photovoltaics, solar water heating, solar space heating, solar thermal electric, passive solar, solar pool heating, wind systems, geothermal, and more. It covers residential, commercial, and industrial properties with no cap on the system size or value of the exemption.

To claim the exemption, property owners must provide their county assessor with documentation confirming the purchase and installation of the eligible equipment, including costs. This documentation must be submitted no less than six months before the notice of full cash value is issued for the initial valuation year. Contact your local county assessor’s office for specific submission deadlines and required forms.

Arizona transitioned from traditional net metering to a net billing policy in 2017. Under net billing, when your solar panels produce more electricity than your home uses, the excess energy is sent to the grid and credited to your account — but at a rate lower than the retail price of electricity. As of 2026, export rates vary by utility: Arizona Public Service (APS) credits excess generation at approximately $0.076/kWh, Tucson Electric Power (TEP) at approximately $0.057/kWh, and Salt River Project (SRP) at approximately $0.028/kWh.

One important protection for solar homeowners: when you interconnect your solar system, your export rate is locked in for 10 years. Even if the utility lowers the rate for new customers in future years, your rate remains the same for the duration of that period. Additionally, Arizona’s net billing policy limits how quickly rates can drop — compensation rates cannot decrease by more than 10% per year for new customers.

Because export rates are lower than retail electricity rates, pairing your solar system with a battery storage system is a smart strategy in Phoenix. Instead of exporting excess solar energy to the grid at a reduced credit rate, you can store it in a battery and use it later when your panels aren’t producing — maximizing your self-consumption and reducing your reliance on grid power. Note that SRP is transitioning new solar customers to net-billing-based time-of-use (TOU) rate plans starting in late 2025, which further rewards solar-plus-battery systems.

Arizona Public Service (APS) operates a Storage Rewards Pilot program that compensates residential customers for making their home battery storage available to the utility during periods of peak electricity demand. By enrolling, homeowners in Phoenix can earn financial incentives while helping APS manage grid stress — a win-win for both participants and the broader electricity system.

The program is compatible with select battery systems, including FranklinWH residential energy storage systems. Homeowners who install a qualifying battery can enroll and receive payments for allowing APS to dispatch stored energy during designated peak events. Your home’s power is maintained throughout these events, and you retain backup power capability.

For homeowners who want to participate but are concerned about upfront costs, leasing options are available through financing platforms like Palmetto’s LightReach, which can lower the initial investment while still allowing participation in the incentive program. Contact APS directly or visit aps.com for current program details, compatible equipment lists, and enrollment information.

Arizona’s Renewable Energy Production Tax Credit is available to businesses and individuals who own and operate qualifying renewable energy systems with a minimum capacity of 5 megawatts (MW). The credit is calculated based on the actual kilowatt-hours (kWh) of electricity produced by the system each year and is paid out over a 10-year period. For photovoltaic and solar thermal electric systems, the credit starts at $0.04/kWh in years 1 and 2, steps down gradually, and reaches $0.01/kWh in years 9 and 10.

The maximum credit is $2 million per system per year, and the total annual program budget is $20 million statewide. The credit may be applied against either corporate or personal income taxes, providing flexibility for different business structures. Only systems installed after December 31, 2010 are eligible.

This incentive is best suited for large-scale commercial or utility solar developers rather than typical residential homeowners. For full eligibility requirements, application procedures, and current program availability, visit the Arizona Department of Revenue’s tax credits page at azdor.gov.