If you plan to install a solar panel system in your residential or business building, there are some solar tax exemptions that you’ll want to keep in mind. Continue reading to dive into the incentives you can receive state-by-state.
Solar Energy Tax Exemptions
Below is an outline of the two tax exemptions you can receive in the U.S.
Solar Property Tax Exemptions
This tax exemption allows homeowners and businesses to exclude the total cost of a solar project (including installation) for tax benefits. This exemption allows taxpayers to install solar panels on either commercial or residential property.
At the time of writing this article, 36 U.S. states provide property tax exemptions for solar panels. Solar investment tax credit (ITC) enables you to deduct up to 26% of the total cost of installing and buying solar panels.
Solar Sales Tax Exemptions
This solar tax incentive helps to reduce the upfront costs of installing a solar panel system, and there are currently 25 U.S. states that provide state sales tax exemptions. Bear in mind that some states have a size requirement in order to be considered for this tax exemption.
The sales tax exemption also includes all components used in solar energy systems as well as sales and energy storage costs. This helps to reduce the cost of purchasing an entire solar system that would otherwise be applied to the final transaction.
Finding Solar Tax Exemptions in Your State
Below is a table of the U.S. states along with whether they qualify for property and sales tax exemption. If applicable, you’ll find the total percentage you can claim. We also included the average solar installation cost per watt for each state.
Solar Tax Exemptions by State
|State||Property Tax Exemption||Sales Tax Exemption||Typical Solar Installation Cost|
|Alabama||None||None||$2.45 per watt|
|Alaska||Local exemptions||None||$2.41 per watt|
|Arizona||100%||100%||$3.50 per watt|
|Arkansas||None||None||$2.92 per watt|
|California||100% exempt until 01/02/2025||None||$2.36–$3.20 per watt|
|Colorado||100%||100%||$2.88–$3.90 per watt|
|Connecticut||100%||100%||$2.86 per watt|
|Delaware||None||None||$2.01–$2.73 per watt|
|Florida||100%||100%||$2.57 per watt|
|Georgia||None||None||$2.80–$3.78 per watt|
|Hawaii||100% NHL only||None||$2.67 per watt|
|Idaho||None||None||$2.60 per watt|
|Illinois||Special assessment||None||$2.60–$3.52 per watt|
|Indiana||100%||None||$2.95–$3.99 per watt|
|Iowa||100% exempt for five years||100% exempt||$2.90–$3.92 per watt|
|Kansas||100%||None||$2.59 per watt|
|Kentucky||None||None||$2.34 per watt|
|Louisiana||100%||None||$2.64–$3.56 per watt|
|Maine||None||None||$2.64–$3.58 per watt|
|Maryland||100%||100%||$2.40–$3.29 per watt|
|Massachusetts||100% exempt for 20 years||100%||$2.89–$3.91 per watt|
|Michigan||100%||None||$2.86–$3.86 per watt|
|Minnesota||100%||100%||$2.93–$3.97 per watt|
|Mississippi||None||None||$2.64 per watt|
|Missouri||100%||None||$2.35–$3.17 per watt|
|Montana||100% for 10 years||None||$4.37 per watt|
|Nebraska||Exemptions only over 100 kW||None||$2.83 per watt|
|Nevada||Exemptions only over 10 MW||None||$2.11–$2.85 per watt|
|New Hampshire||Local exemptions||None||$2.92–$3.94 per watt|
|New Jersey||100%||100%||$2.75 per watt|
|New Mexico||100%||100%||$2.87–$3.89 per watt|
|New York||100% for five years||100%||$2.67–$3.61 per watt|
|North Carolina||80%||None||$2.55–$3.45 per watt|
|North Dakota||100% for five years||None||$2.42 per watt|
|Ohio||Exemptions in Cincinnati and Cleveland||100%||$2.45–$3.31 per watt|
|Oklahoma||None||None||$2.62 per watt|
|Oregon||100%||None||$3.60 per watt|
|Pennsylvania||None||None||$2.56–$3.46 per watt|
|Rhode Island||100%||100%||$2.84 per watt|
|South Carolina||None||None||$2.42–$3.28 per watt|
|South Dakota||Exemption of $50,000 or 70% of your property value||None||$2.39 per watt|
|Tennessee||Tax value no more than 12.5% of installed cost||100%||$2.49 per watt|
|Texas||100%||None||$0.48–$0.63 per watt|
|Utah||None||Exemptions only over 2 MW||$2.31–$3.13 per per watt|
|Vermont||100%||100%||$2.62–$3.54 per watt|
|Virginia||Local exemptions||None||per watt|
|Washington||None||Exemptions only up to 10 kW||$2.53–$3.43 per watt|
|Washington D.C.||100%||None||$2.88 per watt|
|West Virginia||None||None||$2.64 per watt|
|Wisconsin||100%||100%||$2.60 per watt|
|Wyoming||None||None||$2.57 per watt|
Who Qualifies for Solar Tax Exemptions?
The two tax exemptions — property and sales — are applicable to individuals and companies that install solar energy panels onto a property.
How to Claim Tax Exemptions
To make a claim, you need to file an IRS Form 5695 in addition to your tax return. You’ll then calculate the credit on Part I of the form and submit the final result in your 1040.
Federal Solar Incentives: Federal Solar Tax Credit, Rebates, and Loans
The Federal Solar Tax Credit
This provides people with a 26% tax credit for any solar panel system installed between 2020 and 2022.
Your utility company may provide you with a solar rebate for installing a PV system. If this happens, they’ll pay you a lump sum amount. Bear in mind, that a utility solar rebate typically affects the amount of solar tax credit you receive.
Additionally, some U.S states offer a solar rebate to encourage people to install solar panel systems. Compared to a utility solar rebate, a state solar rebate doesn’t affect your solar tax credit eligibility. The rebate amount is usually between 10–20%, but it varies.
Low-Interest Solar Financing Loans
If you don’t have enough money to purchase and install your solar panels, consider financial incentives, such as a solar financing loan, which typically has interest rates between 6–36%. This interest rate takes into consideration your credit score, income, any existing debts, and more factors.
Frequently Asked Questions
What is the 2022 solar tax credit?
In 2020, Congress extended the ITC, which offers a 26% tax credit for solar power systems installed in 2020 to 2022. For systems installed in 2023, the current tax credit stands at 22%. Solar panels installed before 2019 were eligible for a 30% tax credit.
How does the 26% solar tax credit work?
You can deduct 26% of the cost of your solar panel system from your business taxes. To qualify, you must have an income tax liability when filing your taxes.
Is solar installation tax-exempt?
For the income to remain tax-free, the solar panel installation mustn’t generate more electricity than you use in your business or personal property.
Are solar roofs tax deductible?
You can claim your roof shingles as tax-deductible via the federal solar investment tax credit. This enables you to deduct 30% of the total system cost.
Do solar panels increase home value and property taxes?
Many states have laws that prevent homeowners from being punished for their investments in solar panels. Generally speaking, adding a solar panel system increases your home’s assessed value, which can increase your home’s property taxes, too.
How does the IRS verify the solar tax credit?
The IRS website states that solar electric property costs are only for the property that uses solar energy to produce electricity for use in the United States. Some solar roofing shingles and roofing tiles also serve the function of solar energy, allowing them to qualify for tax credit. In fact, all costs related to a solar panel system can qualify.
Is Solar a Write-Off?
Solar tax exemptions are a great way to encourage property owners to invest in eco-friendly renewable energy. The tax exemptions, solar tax credits, solar rebates, and solar financing loans are excellent incentives to save you money on your annual tax year.
Today's Homeowner’s Solar Companies Rating Methodology
At Today's Homeowner, transparency and trust are our most important values for the reader. That’s why we took the time to create an objective rating system and score each solar energy company/service according to our methodology.
Our research team dug deep into the fine print of contracts, combed through more than one hundred customer reviews, and thoroughly investigated all of each solar energy company’s services, costs, and products. We’ve done the homework for you by researching nearly all of the solar energy companies on the market so you can have the information you need to make the best choice for your home.
Read more: Top 6 best solar panels for homes.
We developed a formula to objectively determine the best solar energy companies and give each a score out of 100 based on the following criteria:
Plan Options (30): Do they provide a variety of plan options? We looked at the number of plans each solar energy company offered and the flexibility of adjusting the plan.
Services offered (20): How many services are offered in each plan? We looked at whether the company manufactures its own solar panels, whether it contracts out installation, and what additional products each company offers.
Trust (10): What do customers say after their solar panels are installed? Does this company offer a guarantee? We considered how satisfied customers are post-service if the company does what it says it will, BBB accreditation, and service guarantees.
Prices (10): How reasonable are the costs of the plan or service in comparison to the industry average? We compared the costs of each company to competitors that offer the same solar energy services.
Unique perks (10): Does the company offer discounts or special services such as financial incentives, rebates, or a useful mobile app? We looked for extras each company offers that set them apart from the competition.
Customer Service (10): How is the customer experience when contacting the company? We considered the speed of response, weekend/holiday availability, and ease of communication through phone calls, email, and online chat functions.
Nationwide availability (10): How many states does the company offer its services? Companies that operate nationally and in all zip codes are favored over those with limited availability.