Solar Tax Exemptions: Sales Tax and Property Tax (2021)

Solar Tax Exemptions: Sales Tax and Property Tax (2021)

There are financial incentives available that make it easier for homeowners to invest in solar energy systems, including a number of solar tax exemptions at the state and local levels. These solar tax exemptions can vary by location and may include relief from sales taxes, property taxes and more.

In this article, we'll discuss which tax exemptions are available to homeowners who invest in renewable energy systems in each state, as well as the federal solar tax credit. Read on to learn more, or fill out the form below to get a free, no-obligation quote from a solar installer near you to see how much can save on a solar panel system.

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.

Solar Sales Tax Exemptions

Solar sales tax exemptions are a common financial incentive designated by state governments. According to the Solar Energy Industries Association, there are currently 25 states that offer a solar sales tax exemption.

What does this mean, exactly? Most states levy a tax on consumer purchases, which can range from 2.9% to 9.5%. With a solar sales tax exemption, these taxes are waived on purchases of solar panels, solar batteries and other forms of solar equipment. Naturally, this can reduce the total purchasing cost considerably, making a solar investment a bit more affordable.

For example, if your state has a sales tax of 6% and you purchase a solar panel system for $16,000, you'll end up paying $16,960 in total. If your state has a solar sales tax exemption, however, you'll only pay $16,000.

Solar Property Tax Exemptions

The Solar Energy Industries Association notes that 36 states currently offer a property tax exemption for homeowners who install residential solar systems.

Here's what this means: A solar panel installation typically results in a significant increase in your property values. (On average, homeowners see a solar-related property value increase of about 4.1%.) In states that have renewable energy property tax exemptions, homeowners whose property values rise are protected from a comparable increase in property taxes. In other words, the worth of the home goes up, but homeowners do not have to pay anything more come tax time.

Solar Tax Exemptions: State By State Breakdown

Different states have different laws when it comes to sales and property tax exemptions for solar installations. To learn about the tax incentives available in your area, check the table below:

State Solar Property Tax Exemption* Solar Sales Tax Exemption*
Alabama No exemption No exemption
Alaska Local exemptions No sales tax
Arizona 100% exempt 100% exempt
Arkansas No exemption No exemption
California 100% exempt until 1/2/2025 No exemption
Colorado 100% exempt 100% exempt
Connecticut 100% exempt 100% exempt
Delaware No exemption No state sales tax
Florida 100% exempt 100% exempt
Georgia No exemption No exemption
Hawaii 100% NHL only No exemption
Idaho No exemption No exemption
Illinois Special assessment No exemption
Indiana 100% exempt No exemption
Iowa 100% exempt for 5 years 100% exempt
Kansas 100% exempt No exemption
Kentucky No exemption No exemption
Louisiana 100% exempt No exemption
Maine No exemption No exemption
Maryland 100% exempt 100% exempt
Massachusetts 100% exempt for 20 years 100% exempt
Michigan 100% exempt No exemption
Minnesota 100% exempt 100% exempt
Mississippi No exemption No exemption
Missouri 100% exempt No exemption
Montana 100% exempt for 10 years No state sales tax
Nebraska Exemptions only for systems over 100 kW No exemption
Nevada Exemptions only for certain systems over 10 MW No exemption
New Hampshire Local exemptions No state sales tax
New Jersey 100% exempt 100% exempt
New Mexico 100% exempt 100% exempt
New York 100% exempt for 5 years 100% exempt
North Carolina 80% exempt No exemption
North Dakota 100% exempt for 5 years No exemption
Ohio Exemptions in Cincinnati and Cleveland 100% exempt
Oklahoma No exemption No exemption
Oregon 100% exempt No state sales tax
Pennsylvania No exemption No exemption
Rhode Island 100% exempt 100% exempt
South Carolina No exemption No exemption
South Dakota Exemption of either $50,000
or 70% of total property value
No exemption
Tennessee Tax value no more than 12.5% of installed cost 100% exempt
Texas 100% exempt No exemption
Utah No exemption Exemptions only for systems
over 2 MW
Vermont 100% exempt 100% exempt
Virginia Local exemptions No exemption
Washington No exemption Exemptions only for systems
up to 10 kW
Washington DC 100% exempt No exemption
West Virginia No exemption No exemption
Wisconsin 100% exempt 100% exempt
Wyoming No exemption No exemption

*Accurate as of time of publication.

Federal Solar Tax Incentives

In addition to these state-specific incentives, there is also a federal tax incentive that is available to all Americans who invest in solar power. The solar investment tax credit (ITC) is currently valued at 26% of the total solar installation cost, meaning homeowners can essentially deduce 26% of that up-front cost.

This tax credit covers:

  • The cost of solar panels
  • Labor costs for installation
  • Additional solar equipment, like inverters, wiring, etc.
  • Energy storage devices, including solar batteries
  • Sales taxes paid for eligible solar installation expenses (in states that do not have sales tax exemptions)

Note that the federal tax credit is available for all homeowners who purchase a system, whether they buy it outright or finance it with a solar loan, but it is not available to those who lease solar panels.

Frequently Asked Questions: Solar Tax Exemptions

Are solar panels exempt from sales tax?

In states that have a solar sales tax exemption, yes, the purchase of solar panels is shielded from sales tax. Currently, at least 25 states offer a solar sales tax exemption.

Is solar sales tax exempt in Texas?

No, Texas solar incentives do not currently include a sales tax exemption.

Is solar exempt from property taxes?

Currently, there are 36 states that offer solar property tax incentives. Take a look at the chart included above to find out whether your state offers a solar property tax exemption. Some municipalities may have local property tax abatements as well, so property owners considering going solar should check government websites for additional information about incentives and rebates.

Are solar roofs tax deductible?

Your solar roof shingles can be claimed via the federal solar investment tax credit, allowing you to deduct 26% of your total clean energy system costs.

Do solar panels decrease property taxes?

Solar projects usually increase residential property values, which in some states may actually mean an increase in property taxes. However, in the 36 states that offer a solar property tax exemption, an increase in home values does not result in an increase in property taxes.

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