Arizona Solar Incentives and Tax Credits in 2025

If there’s a more obvious match than the Arizona sun and solar panels, it’s hard to think of. But the amount of sunlight isn’t the only thing affecting whether home solar panels make financial sense for you.

Plenty of people have installed solar panels in Arizona, and they’ve likely taken advantage of incentives to lower the cost of solar panels, or increase their savings. If you’re thinking of going solar and adding to Arizona’s already impressive solar capacity, here’s what you need to know about incentives in the state.

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. The cost of installing solar batteries also qualifies.

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. 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.

The tax credit disappears at the end of 2025, by which time solar panels need to be installed in order to qualify. The tax credit applies only to people who buy their solar panels. Other options, like solar leases and power purchase agreements won’t be affected by the 2025 deadline. 

Arizona State Residential Solar Tax Credit

In addition to the Residential Clean Energy Credit, most Arizona residents purchasing solar 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. Arizona’s tax credit is not eligible to leased systems. 

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 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. 

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 in Fall 2025, credits were between two and seven cents.

• Arizona Public Service (APS): approximately 6.1 cents/kWh
• Tucson Electric Power (TEP): approximately 5.1 cents/kWh
• Salt River Project (SRP): approximately 2-6 cents/kWh

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

Because export rates are lower than the rate you pay for electricity from the grid, you can save more by avoiding grid electricity than by exporting electricity from your solar panels to the grid. A solar battery, which can store electricity you would have sent to the grid to cover consumption later, can boost savings in Arizona. 

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, and solar panels have an expected lifespan of 25 years or longer, so installing solar panels could save you money for decades to come.

While federal incentives for purchasing solar panels are winding down faster than expected, solar leases and power purchase agreements (including energy storage) can qualify for incentives for longer. Most incentives for these types of agreements, called third party ownership, go to the leasing company, but can be used to reduce solar leasing costs for customers. 

If you’re curious about what solar can do for you, check out Palmetto’s free solar savings calculator for a personalized estimate.

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. The calculation is based on the cost of your solar installation. The Arizona tax credit is 25% of the cost up to $1,000. The federal tax credit is 30% with no dollar limit.

Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.