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Arizona Solar Incentives: Tax Credits & Rebates Guide (2022)

By Jon Jachura

Solar installations are becoming more prevalent as renewable energy systems become more affordable. While some states aren’t particularly solar-friendly, Arizona offers a decent amount of incentives and rebates to encourage the switch to solar.

Compared to some other states, Arizona is solar-friendly. By combining state and federal solar incentives, the barrier to entry is lowered, making the switch to solar more financially viable for Arizonans.

Why Go Solar in Arizona?

Solar energy systems are more affordable today than they ever have been. Entry costs have dropped substantially compared to several decades ago, which makes these systems more affordable than ever. With the lower costs, Arizona homeowners can use local and federal incentives to reduce the price further.

Arizona receives nearly 300 sunny days annually, making it the ideal place for solar energy systems. Some homeowners can eliminate their electric bills entirely, switching to purely solar. Some may generate more than enough, which they can sell back to their utility company (depends on your utility’s net billing policy).

Aside from a lower barrier to entry and reduced electric bills, solar energy devices are an exceptional way to reduce your carbon footprint and commit to a greener way of life.

Arizona Solar Cost

The cost of a solar panel system varies depending on several factors, including the size of the system, the solar installation company you choose, and the rebates available to you. The average per-watt cost for solar panels in Arizona is $2.61, which is lower than the national average of $2.94.

For a 5-kilowatt system, the total cost for an Arizona homeowner comes out to $13,050 before applying solar incentives. After utilizing the federal tax credit and the Arizona tax credit, homeowners could save an additional $4,393.

Some homeowners may have access to additional rebates or incentives through their utility companies, although this varies based on the utility company.

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How Much Can You Save on Solar in Arizona?

Arizona homeowners can save thousands of dollars on solar in Arizona. Residents can save thousands on their solar energy systems using the federal tax credit and the Arizona tax credit.

On top of these two credits, some Arizona homeowners might have access to additional price cuts through their utility companies. Some utility companies offer direct rebates, while others provide payback programs for overproduced energy. These policies and programs vary based on the utility company, so the additional incentive may not be available to everybody.

Aside from the installation cost savings, homeowners can save thousands or even tens of thousands after installation. With an adequately sized system, homeowners might generate enough power to completely eliminate their electric bill, saving them thousands they would have otherwise paid to the utility company.

The Best Solar Incentives, Tax Credits, & Rebates in Arizona

Incentive Summary End Date
Federal Solar Investment Tax Credit This tax credit allows homeowners to claim 26% of their solar energy system cost on their income tax return. December 31st, 2023 (drops to 22% in 2023 before expiring in 2024)
Property Tax Exemption Arizona residents are exempt from paying property tax on their solar energy systems despite increased home value. None
Sales Tax Exemption Arizona homeowners are exempt from paying sales tax on their solar energy system. None
Arizona Residential Solar Energy Tax Credit Homeowners can claim a tax credit for 25% of the system cost or $1,000, whichever amount is lower. None

Some municipalities and utility companies offer rebates and incentive programs, but it’s important to research the offer. Many of these require homeowners to follow specific steps, so without following the instructions to a T, they may not be able to receive the rebate.

So, if you find an offer available in your area, make sure you research it thoroughly to guarantee you follow the correct steps.

Federal Solar Investment Tax Credit (ITC)

Homeowners across the United States have access to the Federal Solar Investment Tax Credit (ITC). This credit awards homeowners a discount on their solar energy system  and solar battery storage purchases on their next federal tax return.

As of 2022, the program’s maximum tax credit allows homeowners to receive up to 26% of the total system cost back. However, since the money is given to homeowners via their tax returns, this means the homeowner is responsible for the entire upfront cost of solar panels. So, while the ITC will contribute to the cost of your solar energy system, you won’t receive funds until the following year when you file taxes (as an income tax credit).

It’s important to note that the Federal Solar Tax Credit will drop to 22% in 2023. The following year, in 2024, the credit will expire entirely unless the federal government moves to extend it. Due to this reduction and imminent disappearance, now is the best time to install solar. After all, once the Federal Solar Tax Credit expires, rebates and incentives will be limited to what’s available locally.

Arizona Solar Sales Tax Exemption

Sales tax on large purchases can quickly become a sizeable chunk of money. Considering the price of rooftop solar energy systems, tacking on sales tax can be the defining factor for some homeowners. However, Arizona homeowners don’t need to worry about sales tax, as solar systems are exempt from tax in this state.

If it weren’t for this exemption, homeowners would face an additional 5.6% sales tax. For example, if your system costs $13,050, you’re saving $731 upfront by not having to pay sales tax.

Arizona Solar Property Tax Exemption

On top of sales tax exemptions, Arizona also offers solar property tax exemptions. Generally, when you improve your home, you increase the value of your home, and with the added value, your property taxes rise.

Photovoltaics are a form of home improvement but don’t count toward property tax in Arizona. Homeowners don’t need to expect elevated property taxes after installing a solar energy system, as these systems are exempt.

Arizona Net Metering

Some states have net metering laws requiring utility companies to give homeowners full credit for all overproduced energy they send to the grid. However, Arizona doesn’t have net metering policies. Until 2016, Arizona had net metering policies for solar power, where utility companies were required to credit homeowners at full retail price.

However, this was repealed in 2016, and the state now has “net billing,” where electric companies give homeowners partial credit. So, homeowners don’t receive payment or credits for the full retail value but instead receive partial credit.

Residential Arizona Solar Tax Credit

Many homeowners considering solar are aware of the Federal Solar Tax Credit. However, fewer are familiar with Arizona’s Residential Solar Tax Credit. This state tax credit awards a tax credit to homeowners for 25% of the solar energy system’s installed costs or $1,000, whichever amount is lower.

So, on top of the ITC, which is worth 26% of the total solar equipment and installation cost, you can tack on an additional $1,000 savings (or less if 25% is the lesser value).

Utility And Municipality Programs

Although there aren’t any widespread rebate programs available throughout Arizona, aside from the state’s tax credit, a few utility companies and municipalities offer energy efficiency programs.

Generally, these companies and municipalities create their own programs, so the specifics vary from one to the next. Some utility companies don’t offer any rebates or incentives, while other utility companies do.

For example, the Salt River Project offered an incentive toward solar battery systems until April 30, 2021. While in play, the program offered $300 per kilowatt-hour of storage capacity, capped at $3,600.

Commercial Arizona Solar Incentives

Unfortunately, Arizona doesn’t offer any solar programs or incentives specific to commercial businesses. However, there are several incentives available from a federal level that target businesses. So, while businesses may not have access to the same benefits as residential taxpayers, they can take advantage of the ITC or USDA REAP grant (if eligible).

Solar Incentives for Nonprofits and Businesses in Arizona

As of 2022, there aren’t any solar incentives specific to nonprofits or businesses in Arizona. That said, several government and commercial savings plans exist to aid nonprofits with affording solar energy systems. In addition, businesses and nonprofits alike can benefit from the ITC, and some may even qualify for the USDA REAP grant.

USDA REAP Grant

The Rural Energy for America Program (REAP) aids agricultural producers with switching to renewable energy sources, such as solar. The United States Department of Agriculture offers this program in an effort to help them find suitable loans. For assistance with loan financing, businesses simply need to provide their contact information to the USDA.

Aside from agricultural producers, REAP also assists small businesses in rural areas that want to switch to solar or upgrade. The USDA handles the stressful parts of looking for and negotiating funding. All the company does is submit its solar project plan, and the USDA handles applying for all available grants.

Federal Solar Tax Credit for Businesses in Arizona

Like residential homeowners, business owners have access to the Federal Solar Tax Credit. The percentage is higher for businesses than it is for residential homeowners, as companies can receive a 30% tax credit toward solar installation costs.

Many businesses require large solar energy systems to offset energy consumption, so this tax credit can translate to tens of thousands of dollars in savings. While this credit is an excellent way to offset system costs, it won’t be around for much longer.

In 2023, the credit drops to 10% before disappearing altogether in 2024. Congress could vote to extend the bill beyond 2024, but as of now, it’s set to expire in a few years. So, now is the time for business owners considering renewable energy to switch to solar.

Key Takeaways: The Best Arizona Solar Incentives

Residents of the Grand Canyon state have access to a few motivating solar rebates and incentives, from the ITC to Arizona’s Solar Tax Credit. Although the steep upfront price can be a deterrent for solar energy systems, these credits and incentives bring down the cost, making solar a feasible option for more homeowners.

As time goes on, solar will likely continue to become more affordable. However, since the federal incentive is dropping and expiring within the next few years, now is a great time to invest in a solar energy system.

Arizona Solar FAQ

Is solar worth it in Arizona?

Yes, solar is a solid investment for Arizona homeowners. Given the numerous rebates and incentives available to homeowners, the barrier to entry is reasonable. The Federal Solar Tax Credit and the Arizona Solar Tax Credit combined shave off a sizeable portion of the final cost, making solar a more affordable option.

Aside from the upfront costs, some homeowners can entirely wipe out their electric bills, relying solely on solar power. Since Arizona solar energy systems are property- and sales tax-exempt, homeowners don’t need to worry about these areas either.

How much will my electricity bill go down with solar in Arizona?

Like it’s sunny neighbor – New Mexico, Arizona receives about 300 days of sunshine annually. Although sunshine percentages vary throughout the state, most of Arizona receives much more sunny days than the national average.

In some cases, homeowners can completely eliminate their electric bills. Of course, this depends on the size of the system and the specific location. For example, an undersized system will only account for a portion of your energy consumption, so you will need some power from the grid.

How much does it cost for solar panels in Arizona?

On average, solar panels in Arizona cost $2.61 per watt, which is below the national average of $2.94 per watt. Given the state’s abundant sunshine, a 5-kilowatt system may suffice for many homes.

So, the average cost for the system is about $13,050 before applying incentives. After applying the Federal Solar Tax Credit and the Arizona Tax Credit, this comes out to a total deduction of $4,393.

Of course, costs may vary based on the size of the system necessary for your home, the solar company you choose, and several other factors.

Can you get solar panels for free in Arizona?

No, you cannot get solar panels for free in Arizona. Although some companies market the panels to make it seem like the panels are free, there’s usually a power purchase agreement (PPA) or solar lease behind the marketing tactic.

However, there are numerous rebates and incentives available to Arizona homeowners. So, while the system won’t be free, you can take advantage of available rebates to offset the cost.

What solar rebates are available in Arizona?

Arizona homeowners have access to multiple solar rebates, as the state is extremely solar-friendly. Arizona solar energy systems are exempt from property and sales tax, so homeowners don’t have to worry about allocating additional funds to these areas.

On top of that, Arizona offers a statewide tax credit worth 25% of the system’s installation costs or $1,000, whichever is lower. Certain utility companies and municipalities offer rebate programs and other financial incentives, but this is subject to location and your utility company.

How many homes in Arizona have solar panels?

There are 191,900 solar installations in Arizona, the majority of them being residential solar panels. Approximately 8.23% of the state’s energy comes from solar, which is enough to power nearly a million homes.

Considering the abundant sunshine Arizona receives, the popularity of solar energy systems is no surprise.

Do solar panels increase property taxes in Arizona?

No, installing solar panels on your Arizona home will not increase property taxes. Although many home improvements raise the value of your home and, therefore, your property taxes, Arizona solar energy systems will not increase your property taxes.

However, adding a solar energy system increases your home’s value, so it’s a win-win.

How much can you write off for solar panels on taxes in Arizona?

Arizona is very solar-friendly, as it offers a Residential Solar Tax Credit. This tax credit is completely isolated from the Federal Solar Tax Credit, which is available to homeowners nationwide. The Arizona Solar Tax Credit offers homeowners a credit for up to 25% of your system’s installed price or $1,000, whichever total is lower.

Combined with the Federal Solar Tax Credit, homeowners can receive a sizeable portion of their solar energy system cost in their tax returns for the year.

House Method’s Solar Companies Rating Methodology

At House Method, 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.

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.

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