Arizona is one of the sunniest states in the country, making it great for solar, but solar panels are also more expensive in Arizona than they are in most states. Arizonans consume more energy than the residents of other states to combat the state’s extreme summer temperatures, which means that solar systems in Arizona are larger and cost more, on average.
Luckily, Arizona residents can offset the higher costs of solar in the state by taking advantage of a combination of federal, state, and local solar incentives. This guide covers all of the incentive programs Arizonans need to know about to save as much money as possible when switching to solar power.
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How Does Arizona Rank for Solar Incentives?
The good news for Arizonans is that Arizona is one of the best states in the country for solar incentives. The bad news is that the cost of going solar in Arizona is quite expensive, so it’s essential to take advantage of all the savings opportunities you have at your disposal.
The cost per watt for solar is $2.61 in Arizona, slightly below the national average cost per watt of $2.66. Unfortunately, Arizona’s average household energy consumption is much higher than in most states, which means the total cost of going solar is also higher. It costs $30,015 to go solar in Arizona compared to the national average of just $23,940, both before any incentives.
The table below summarizes the solar incentives available in Arizona that we’ll discuss in this article.
| Solar Incentives Available in Arizona | What Is It? | When Can You Get It? | How Much Can It Save You? |
| Federal Solar Investment Tax Credit (ITC) | Credits 30% of your entire system price to your income tax burden | One time: Gets applied when you file your taxes after conversion | $9,005 via tax credits on average in Arizona |
| Residential Solar Energy Tax Credit | A tax credit equaling 25% of your system’s total, up to $1,000 | One time: You receive the tax credit once when you file taxes | Up to $1,000 |
| Solar Equipment Sales Tax Exemption | Solar systems are 100% exempt from sales tax. | One time: You save money when you purchase by avoiding sales tax. | Almost $1,700 on an average 11.5 kW system |
| Energy Equipment Property Tax Exemption | Solar won’t make your property taxes go up | Ongoing: Your home’s assessed value is not affected by the addition of your solar system. | Varies, but saves about $2,500 total for the average Arizona resident |
| Local Incentives | Tax incentives and rebates offered by utility companies and local governments | Varies by program | Varies by program |
| Net Metering | Allows you to earn energy credits for all overproduction and offset utility bills. | Continuous: Always in effect | Varies based on system size, energy needs, and credit rate |
Featured Video: Does This AZ Homeowner’s Cost Savings Make Solar Worth It?
Federal Solar Tax Credit (ITC) — How It Impacts Arizona Residents
Our take: If you only take one incentive, make it this one. It’s, by far, the most beneficial, it’s available to all AZ residents, and it only takes a few minutes to apply.
Every Arizona resident should know about the federal investment tax credit (ITC), which lets you claim up to 30% of your solar system’s total cost as an income tax credit.
Arizonans consume more energy than most other states’ residents, which means they require larger systems to offset their monthly use. The average system size in Arizona is 11.5 kilowatts (kW), while the national average is around 9 kW. With the average cost of solar in Arizona coming in at about $2.61, that puts the total cost of solar panels in Arizona at $30,015.
The federal solar investment tax credit (ITC) lets homeowners claim up to 30% of the total cost of their rooftop solar system as a tax credit. For Arizona, that means potential savings of around $9,005, which brings the average total cost in the state down to a much more manageable $21,011.
Unfortunately, the federal ITC isn’t going to last forever, so if you’re thinking about going solar eventually, you’re better off doing it soon. The federal government plans to phase out the ITC over the next 10 years or so, reducing the total amount you can claim until it does away with the program entirely in 2034.
Here are the specific dates and eligible percentages as they’re written now:
- 30% of your total system value for solar photovoltaic (PV) systems installed before 1/1/2033.
- 26% of your total system value for solar PV systems installed after 12/31/2032 and before 1/1/2034.
- 22% of your total system value for solar PV systems installed after 12/31/2033 and before 1/1/2035.
- ITC discontinued for systems installed after 12/31/2034.
Those are the rules as of now, but Congress has already extended the ITC once before. Originally, the ITC was supposed to start being phased out in 2024. No one knows whether or not the program will be extended again, but we recommend installing solar panels sooner rather than later, just to be safe.
Steps to Claim the Federal Solar Tax Credit in Arizona
Claiming the federal ITC in Arizona is straightforward. However, figuring out what forms you need and what information you need to fill out can be confusing. Here are the steps you need to take to ensure you get your full tax credit:
- Download form 5695 from the IRS website.
- Fill out part 1 of the form to calculate your tax credit. Solar systems go under “qualified solar electric property costs.” Your system’s cost goes in line 1, and calculations 6a and 6b determine the credit you receive.
- Skip to line 13 unless you have other qualifying renewable energy additions to your home or rollover credit from previous years.
- Use the Residential Energy Efficient Property Credit Limit Worksheet found here to calculate your tax liability limitations.
- Use the information from step 5 to complete the calculations on lines 15 and 16.
- Don’t forget to include your tax credit from line 15 on line 5 of your 1040 when you file your tax return for the year.
This tax credit only applies to taxes you owe. If you owe less than your credit amount, the difference rolls over to the following year and can be applied to your tax burden in that year.
Which Solar Incentives Are Offered at the State-Level in Arizona?
Arizona has several state-level incentives that can help residents of the Grand Canyon state save even more money on their solar panel systems. These state-level programs won’t save you as much money as the federal ITC, but every little bit helps in a state like Arizona, where the cost of going solar is significantly higher than in most states.
Here’s a list of the state incentives available to all Arizona homeowners:
- Residential Solar Energy Tax Credit
- Solar Equipment Sales Tax Exemption
- Energy Equipment Property Tax Exemption
- Net Billing
Arizona’s Residential Solar Energy Tax Credit
Our take: Most states don’t have a state tax credit, too, which makes this a really beneficial program. In combination with the ITC, you could effectively reduce your installation costs by over 30%.
Arizona’s largest state-level incentive lets you claim 25% of your system’s total cost, up to a maximum of $1,000, against your tax burden in the year when you install the system. You can carry any excess credit to future tax years, up to five years.
Any Arizona homeowner who buys a new solar system that comes with at least a two-year warranty for panels and a one-year warranty for other equipment, like solar batteries and electric vehicle (EV) chargers, is eligible for the Residential Solar Energy Tax Credit. Note that solar leases and power purchase agreements (PPA) do not qualify for this tax credit since they’re technically not purchases.
The credit lets you claim 25% of the total cost of your system, up to $1,000, to reduce the amount of taxes you owe for the year in which the system is installed. In reality, any solar panel system is going to cost enough to realize the full $1,000 savings.
Solar panels qualify for this tax credit, as do related solar technologies like solar water heating, solar pool and spa heaters, and other clean energy technology like wind turbines and wind-powered pumps.
If your tax liability is lower than the credit amount for the year you installed the solar power system, you can roll it over for up to five years.
We don’t see the Residential Solar Energy Tax Credit going away anytime soon. The Arizona state legislature votes each year on the statute to determine if any changes need to be made, and there haven’t been any amendments or discussions about reducing or eliminating it in the last several years.
Steps to Claim the Residential Solar Energy Tax Credit
Claiming the Residential Solar Energy Tax Credit is easy and only requires you to fill out and submit a form along with your state taxes. However, we still recommend consulting a certified public accountant (CPA) to ensure you file your taxes correctly to receive the credit.
Here’s how to claim the credit:
- Download form 310 from the Arizona Department of Revenue’s website.
- Use lines 1-9 to calculate your credit for the current tax year.
- Calculate any carryover from previous years using lines 10-15, if necessary.
- Determine your total available credit using lines 16-18.
- Attach the form when you file your state taxes.
We want to emphasize that hiring an accountant is the best way to ensure you file your taxes correctly and receive the appropriate credit.
Solar Equipment Sales Tax Exemption in Arizona
Our take: This is a pretty basic perk, but it’s still really beneficial for saving money upfront. Plus, it’s automatic savings, so you don’t have to do anything to take the incentive.
Solar panels and other renewable energy home improvements are exempt from Arizona’s state sales tax of 5.6%. On average, this lowers the cost of purchasing a solar system by about $1,680.
Arizona has had a solar sales tax exemption since 1997, which means that residents of the state don’t pay sales tax when they purchase a qualifying solar energy system. Some states cap the total savings, but Arizona legislators voted to remove the previous $5,000 maximum in 2006. See our comprehensive guide to solar tax exemption for more detailed information.
The average cost of solar panels in Arizona is $30,015 before any incentives are applied. Without a sales tax exemption, Arizona homeowners would have to pay almost $2,000 more when purchasing a solar system. While this exemption doesn’t put more money in your pocket like the federal ITC, it lowers the up-front costs slightly, which is a big deal in a state like Arizona, where solar is more expensive than average.
Steps to Claim the Solar Equipment Sales Tax Exemption
As a solar customer, all you have to do to claim the solar equipment sales tax exemption is purchase your system from a company that’s registered with the Arizona Department of Revenue. Retailers must register with the state to qualify for the exemption, but virtually all companies do, so you don’t need to worry about finding a retailer that offers the sales tax exemption.
Energy Equipment Property Tax Exemption in Arizona
Our take: Another automatic perk, which I love to see. This gets rid of the biggest downside to going solar, in my opinion: a bump in property taxes.
This is a baked-in property tax exemption that prevents your property taxes from increasing when you install solar panels.
Solar systems usually raise the value of your home, which would cause your property taxes to increase without this exemption. This can be a tremendous savings throughout your solar system’s life span.
Consider that the average home value in Arizona is around $409,000. Solar panels add an estimated 4.1% to your home’s value, according to a study by Zillow. Arizona’s average effective property tax rate of around 0.6% means that the typical Arizona homeowner is saving about $2,500 in property taxes over the course of their system’s 25-year life span compared to what they’d have to pay without the property tax exemption.
Steps to Claim the Energy Equipment Property Tax Exemption
All Arizona homeowners are eligible for this property tax exemption for 100% of the increased value of their home due to a solar system.
Here are the steps you need to take to claim the property tax exemption:
- Obtain documentation that reports the total cost of your solar system from your solar panel installation company. The company should supply a final receipt indicating the total cost of installation and equipment. Make sure the documentation includes the installation cost.
- Submit the documentation to your county assessor no more than six months before the notice of full cash value is issued.
- The specific process you must follow varies by county, so check your county’s website for the details. Your solar installer may do this for you as part of the installation or be able to help you obtain any necessary forms you need to fill out.
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Which Solar Incentives Are Offered at the Local Level in Arizona?
Some areas of Arizona also have local incentives that help its taxpayers save even more money. Most of these are handled by local utility companies, so they aren’t available statewide, but a few operate at the local governmental level.
Here’s a brief rundown of some local incentives available in different parts of Arizona:
- Mohave Electric Cooperative Energy Efficiency Rebate Program. This is a rebate program offered by electric company Mohave Electric Cooperative, Inc. The program offers rebates for installing renewable energy systems like solar PV systems, high-efficiency HVAC systems, and more. The company offers a $0.05 per watt rebate for solar systems purchased from solar company SunWatt. The rebate maxes out at 50 kW systems, so you can save a maximum of $2,500 through this program. For an average 11.5 kW system, you’ll save $575.
- Salt River Project (SRP) Net Metering. The Arizona Corporation Commission (ACC) adopted net metering in 2008, but the state’s policy on net metering doesn’t apply to SRP customers. Instead, SRP customers are credited at the electricity retail rate for any energy their solar systems generate above their consumption in a particular month. Solar systems cannot exceed 300 kW to be eligible for the program, which shouldn’t be a problem for any homeowners since the average system size in Arizona is just 11.5 kW.
- City of Scottsdale Green Building Incentives. The City of Scottsdale incentivizes new green building projects by offering perks like technical assistance, renewable energy system permits, educational materials, and a homeowner’s manual about energy-efficient living. While none of these items are direct financial incentives, the value they bring long-term in the form of better energy practices could save you a decent amount of money. These incentives apply to commercial and residential projects but are more geared toward commercial builders.
Net Metering in Arizona — Can You Profit?
Net metering is the practice of selling the excess energy your solar panels generate back to the electric company. To be eligible for net metering, your system must generally be connected to the grid.
Arizona is transitioning from net metering to net billing, meaning customers are credited at the avoided cost rate rather than the retail electric rate. The avoided cost rate is the amount of money it would have cost the utility company to generate the electricity rather than the price it charges its customers. The avoided cost rate is always lower than the retail rate, so this move reduces the amount of money Arizona solar customers can save.
Read also: How is Solar Energy Transformed into Electricity?
The current ACC-approved rates depend on what electric company you have. Here are the current rates for a few of the state’s largest utility companies in cents per kilowatt-hour (kWh):
- Arizona Public Service (APS): 9.405 cents/kWh
- Tucson Electric Power (TEP): 7.81 cents/kWh
- UNS Electric: 9.32 cents/kWh
Notably, SRP customers are exempt from the ACC’s net billing rates, as discussed in the previous section.
One consequence of the move to net billing is that solar batteries have become more valuable. By storing the excess energy production instead of selling it back to the grid, you’re effectively saving at the retail electric rate since you can use the stored energy later to avoid paying for energy from the grid. This means that installing a high-quality solar battery like a Tesla Powerwall or Enphase IQ battery is often a good idea.
Battery storage also lets you continue to use electricity during power outages, which is nice to have in Arizona since blackouts are becoming more frequent.
Steps to Enroll in Net Metering in Arizona
You don’t have to enroll in net billing yourself since your solar installer will typically do it for you. You might want to confirm with your solar installer, though, that they will fill out the interconnection agreement necessary for connection to the grid via your utility provider. Your solar company also connects your system to the grid, which is a prerequisite for enrolling in net energy metering (NEM) or net billing.
Watch Out For Solar Incentive Scams in Arizona
Some solar companies misrepresent solar programs to make it seem like you’ll save more money than you actually will. Others will overcharge for services that either don’t cost anything or won’t benefit you in any way.
Here’s a look at the most common solar scams you might encounter in Arizona:
- Fake incentive scams: Some scammers invent incentives and then charge you to apply for them. The scammer will claim you’ll save money on your electric bill or receive a rebate for installing a renewable energy system. In reality, they’ll take your money for the “enrollment fee,” and you’ll never hear from them again. You can avoid these scams by researching and verifying any incentives with whatever party allegedly offers the incentive before giving anyone money.
- Misrepresented scams: More often, you’ll encounter companies that claim they can save you more money than other companies. These scammers exaggerate how much money you’ll save by going solar, making their services seem more attractive than the competition’s. In this article, we provided specific savings amounts, so take a step back if something looks too good to be true.
- Overcharging scams: Whether or not you consider this a scam is a matter of semantics, but it’s something you want to avoid, no matter what you call it. Some installers charge exorbitant rates for installing solar systems, insinuating that their system is better in some way. Arizona’s average solar system price is $30,015 before any incentives. If you get quoted a price well above this average, ensure you know what you’re getting. Remember that adding extra features to your system, like an EV charging station or solar battery, will increase its cost, as will buying high-efficiency solar panels.
Bottom Line: Do the Incentives in Arizona Make Going Solar Affordable?
Arizona is one of the more expensive states for solar, but it also has enough solar incentives to make going solar worth it for most homeowners in the state.
The federal ITC is the biggest incentive available to Arizonans, offering 30% of the total cost of your solar system as a federal tax credit. Arizona also offers a tax credit of up to $1,000 to anyone who purchases and installs a qualifying solar system. These incentives combine to reduce the average cost of solar in Arizona from $30,015 to just over $20,000 if you owe enough taxes to take full advantage of both.
Arizona residents also don’t have to pay sales tax on solar energy devices, and their property taxes won’t increase when they install solar panels. While these aren’t incentives that put money directly in your pocket, they do decrease the cost of going solar in Arizona by a considerable amount.
We recommend checking out our articles to learn how to afford solar with incentives, and required solar panels for home power.
Disclaimer: This article is for informational purposes only. It should not be relied on for and is not intended to provide accounting, legal or tax advice.
FAQs About Arizona’s Solar Rebates and Incentives
Does Arizona offer a solar tax credit?
Yes. Arizona has a Residential Solar Energy Systems tax credit that offers 25% of the total system cost up to $1,000 as a state tax credit. Note that this tax credit is in addition to the federal ITC, so Arizona residents can claim both tax credits and potentially save more money on their solar purchases.
Can you really get free Solar in Arizona?
No, you can’t get free solar in Arizona. Anyone who claims you can get free solar in Arizona is probably trying to scam you or get you to enter into a lease or PPA, neither of which is as beneficial as purchasing solar panels. Arizonans can use the available solar incentives to save money on a system purchase. Incentives won’t make your panels free, but they will decrease the costs.
How much is the solar rebate in Arizona?
Arizona residents can take the federal ITC to receive a tax credit worth 30% of the total cost of their solar panel system. They can also take the Arizona solar tax credit, called the Residential Solar Energy Systems tax credit, to get an additional credit of 25% of their system’s total cost, up to a maximum of $1,000. Notably, neither of these are “rebates;” rather, they are tax credits, so if you don’t owe enough taxes to cover the credits, you cannot take advantage of them.
