Arizona Solar Incentives (Rebates, Tax Credits & More in 2023)

You can see a quick overview of the incentives available to Arizonans who install residential solar power systems below. We’ll explain these perks in more detail throughout this article.

What Do Arizona Residents Need to Know About the Federal Solar Tax Credit?

The federal solar tax credit or ITC is the biggest solar incentive program available in the Grand Canyon State, worth up to 30% of your entire system cost.

Arizona is the sunniest state in America, so as you’d imagine, solar panels work extremely well here. However, Arizonans also use a lot more energy compared to most Americans. For context, the average American consumes 886 kilowatt-hours (kWh) of electricity per month, while the average Arizonan consumes 1,058 kWh per month.

Because of the high usage, the average Arizonan would need to install an 11.5 kW system, which costs roughly $30,015, to power their home. But after applying the federal tax credit, that price drops down to $21,010 — a savings of $9,005.

Arizona homeowners who install solar panels have been able to take advantage of the ITC since it was created back in 2005, but the credit has seen several changes since then. Most recently, in August of 2022, thanks to the passage of the Inflation Reduction Act, the tax credit was bumped from 26% back up to 30% of the system value.

The ITC will be available at the following rate schedule:

• 30% of your total system value for solar photovoltaic (PV) systems installed between 2022 and 2031
• 26% of your total system value for solar PV systems installed in 2032
• 22% of your total system value for solar PV systems installed in 2033
• Credit discontinued for systems installed starting in 2034, unless extended again by Congress

Needless to say, if you’re thinking about installing solar panels in Arizona, you should do so sooner rather than later.

How to Claim the Federal ITC in Arizona

If you find tax season daunting, rest assured that a trustworthy solar company will help you through exactly how to claim the federal solar tax credit during your solar installation. We also recommend working with a tax professional when filing your return.

Below are the five steps you will follow when claiming your federal solar tax return in Arizona:

1. Download IRS Form 5695. This residential energy tax credit form can be downloaded straight from the IRS.
2. Calculate your credit on Part I of the tax form (a standard solar energy system will be filed as “qualified solar electric property costs”). On line 1, enter your overall project costs as written in your contract, then complete the calculations on lines 6a and 6b.
3. If solar is your only renewable energy addition, and you don’t have any rollover credit from the previous year, skip down to line 13.
4. On line 14, calculate any tax liability limitations using the Residential Energy Efficient Property Credit Limit Worksheet (found here). Then, complete calculations on lines 15 and 16.
5. Be sure to enter the figure from line 15 on your Schedule 3 (Form 1040), line 5.

Remember, your solar tax credit will only offset the taxes you owe on your return. If the taxes you owe are less than the credit you earn, the credit will roll over year after year.

EcoWatch’s Opinion on the Federal ITC in Arizona

The EcoWatch team nearly jumped for joy when the ITC was raised and extended by Congress in 2022. We love the federal ITC because it makes solar more accessible to more people.

Although the cost of solar has dropped significantly in the last decade, we still understand that it’s a huge investment. Solar panel system costs in Arizona can range from $13,000 to $40,000 depending on the system size, solar equipment brand and solar installation company you choose. That’s not an expense that everyone can afford.

But thanks to the federal tax credit, the price tag range for a solar panel system in Arizona is bumped down $9,005 to $21,010.

Additionally, because it’s offered nationwide, the federal solar tax credit is widely understood and not too complicated to claim.

The downside? The ITC only makes sense if you owe several thousand dollars in federal taxes over the next five years — that’s how long the credit rolls over.
Watch Below: Does This AZ Homeowner’s Cost Savings Make Solar Worth It?

Residential Solar Energy Tax Credit in Arizona

The Arizona income tax credit for solar panels is available statewide and is worth 25% of your system’s installed costs or $1,000, whichever amount is less.² To qualify, your system size needs to be at least 5 kW and it needs to be on land you either own or lease.

According to our market research and data from top residential solar (PV) panel manufacturers, the average cost of solar panels in Arizona is $2.61 per watt of solar capacity, which means the average 11.5 kW system costs around $30,015 before incentives.

In Arizona, you can claim a total tax credit of $10,005 for a solar system at this price:

• The 30% federal tax credit is equivalent to $9,005
• Add the $1,000 Arizona tax credit

After applying both incentives, your total cost for an 11.5 kW solar panel system in Arizona comes out to $20,010.

The combination of federal and state tax credits makes solar panel systems more affordable because you’ll recover a large portion of your investment on your next tax declaration.

How to Claim Arizona’s Residential Solar Energy Tax Credit

Similar to the federal tax credit, Arizona taxpayers will claim the statewide solar tax credit when filing their annual taxes.

To claim the Arizona tax credit, you’ll need to complete the following actions:

1. Go to the Arizona Department of Revenue’s website
2. Download Form 310 for the current tax year
3. Use lines 1-9 to figure out your credit for the current tax year
4. If applicable, use lines 10 through 15 to figure out your total available credit carryover from previous years
5. Use lines 16 through 18 to figure out your total available credit (combining totals from step 3 and step 4)

Again, we recommend contacting a certified public accountant (CPA) to ensure that your solar tax credits are filed correctly.

EcoWatch’s Opinion on Arizona’s Residential Solar Tax Credit

Most states won’t offer you a statewide tax credit to encourage you to go solar, so we here at EcoWatch love that Arizona has this incentive.

Arizona’s solar tax credit is easy to claim. It’s just one more stop in your tax filing journey — which we know can be long and tedious. But if you choose one of Arizona’s best solar installation companies, they’ll give you helpful advice on how to make the process as smooth as possible.

We wish there wasn’t a $1,000 cap on the Arizona solar tax credit because 25% of total system costs would be worth much more than that for many homeowners. But hey, $1,000 off isn’t too bad of a deal. And again, it’s more than most states offer.

Arizona Solar Equipment Sales Tax Exemption 

Any time you buy something in Arizona, you’re charged an extra 5.6% in sales tax. Unless you’re buying eligible solar equipment.

Thanks to Arizona’s solar equipment sales tax exemption, your purchases of

solar panels, solar batteries, solar water heaters, solar inverters and other qualifying solar products are 100% tax-exempt.

For an 11.5 kW solar panel installation, the state sales tax exemption saves you more than $1,680 in upfront costs. That’s huge.

How to Claim the Solar Equipment Sales Tax Exemption in Arizona 

Fortunately you don’t have to do anything to claim the solar sales tax exemption in Arizona because it’s automatically applied to all qualifying solar equipment sales.

EcoWatch’s Opinion on Arizona’s Solar Sales Tax Exemption 

Not every state offers a sales tax exemption, so it’s definitely a great solar benefit for Arizonans. It’s also applied automatically, which means you don’t have to take any extra steps to benefit from this solar incentive.

Energy Equipment Property Tax Exemption in Arizona

Did you know that installing solar panels has been shown to increase home value? Thankfully in Arizona, your property taxes won’t bump up with it.

Typically, home upgrades — like a new roof or an in-ground pool — increase your property value, which in turn raises your property taxes. But the State of Arizona has a law that requires the added home value from solar panels be excluded from your tax assessment.

It’s hard to quantify exactly how much you’ll save thanks to the property tax exemption because it’s based on some variables like where you live and how many solar panels you need installed to power your home. But we can come up with an average figure using the following:

• The average annual property tax rate in Arizona is 0.60%
• An 11.5 kW solar panel system in Arizona costs $30,015

Calculating with the above numbers, Arizona’s property tax exclusion for solar equipment would save you about $180 on average. But of course, your savings could be a lot bigger if you have higher property taxes.

How to Claim Arizona’s Solar Property Tax Exemption

Similar to Arizona’s solar equipment sales tax exemption, you won’t have to complete any extra steps to claim Arizona’s solar property tax exemption.

EcoWatch’s Opinion on Arizona’s Property Tax Exemption

Not every state offers a property tax exemption, so we believe this is a great benefit for Arizonans. It also means that installing a solar panel system is a worthwhile investment in Arizona even if you’re planning to sell your home before the panels’ 25-year life expectancy is up.

According to a study from Zillow, homes with solar panels sell for about 4.1% more than homes without.³ That means adding solar panels could lead to an extra $17,553 in home value in Arizona, where the average home is currently valued at $428,120 (as of November 2022).⁴

Net Billing in Arizona

Unfortunately, Arizona’s net metering program has been phased out after a controversial decision by the Arizona Corporation Commission in 2016.⁵ Instead, Arizona has net billing, and sadly, it’s not quite as beneficial as net metering.

What’s Net Metering?

Net metering is a billing arrangement in which your utility provider gives you credit for unused energy your solar panels produce and send to the electric grid. Those credits are applied to your electricity bill to reduce your cost for the energy your utility supplies you when your solar panels aren’t producing (like at night).

With net metering, most utilities are required to pay solar homeowners the full retail rate of electricity for the energy their panels send to the grid — this is true net metering. But unfortunately, net metering is not available in Arizona.

What’s Net Billing?

Net billing works just like net metering except that the extra energy your solar panels produce is credited at less than the retail rate — called an excess generation credit rate or export rate — that’s determined by your utility.

This rate is typically between 60% and 95% of the cost of electricity in Arizona. The current retail rate of electricity in Arizona is about 16 cents per kWh, so you can expect to be compensated between nine and 15 cents per kWh of solar energy you send to the grid.⁶

The rate you’ll be paid for net billing varies by your utility, its electricity rates and the year you install solar panels. For example, Tucson Electric Power (TEP) had a compensation rate of about eight cents per kWh up until September 30, but it recently dropped to seven cents per kWh, where it will remain through September 2023.⁷

Arizona Public Service (APS) and UNS Electric have slightly higher excess generation rates, priced at roughly nine cents per kWh. Side note: solar homeowners with APS who have a “Saver Choice” electric plan are charged for sending their electricity back to the grid at a rate of 93 cents per kWh.⁸

Rates vary depending on your electricity plan. All figures accurate as of November 2022.

Are you a customer of the Salt River Project or a municipal utility? These utilities don’t fall under the jurisdiction of the Arizona Corporation Commission and therefore aren’t subject to statewide net billing requirements. However, they may offer other solar incentives, which we’ll dive into in the next section.

Another downside of net billing in Arizona is that the program uses “instantaneous netting.” This means the utility looks at how much electricity your solar panels produce in a short time — like an hour — and compares it to how much electricity you consumed in that hour. The excess solar energy production during that interval is what will be credited as the export rate.

Instantaneous netting is going to further decrease the amount of energy savings you’ll see with solar because it takes such a small time interval into account instead of tallying up how much solar panel production you produce over time — like a month — versus consumption, which would likely be much higher. That’s typically how net metering works.

How to Enroll in Net Billing in Arizona

The good news is that you won’t have to do much work to get started with net billing because your solar installer will do it for you.

While going solar may be new to you, solar companies in Arizona are very familiar with the process and should be able to take care of necessary applications for net billing and grid interconnection with your utility company.

EcoWatch’s Opinion on Net Billing in Arizona

We’ve made it pretty clear that net billing is not as great as net metering. But that doesn’t mean that you can’t still make money from going solar in Arizona.

Let’s put it this way. With current Arizona utility rates, net billing might take your bill from $150 a month down to $50 thanks to your excess solar production. That’s still a $100 savings. But if Arizona had net metering, it could bring your bill down to something like $30 a month.

We’d love to see Arizona bring back true net metering, but it doesn’t seem likely. Net billing rates also seem to be tapering off, so we recommend you take advantage of this Arizona solar incentive while you can.

Local Solar Incentives in Arizona

You may be eligible for other incentives and solar rebate programs depending on your utility and the type of photovoltaic solar system you install.

Below are some local solar incentives available in Arizona, but we encourage you to ask your specific utility and municipality about other incentives that may be available to you.

• APS Residential Battery Pilot program: Receive up to $3,750 in incentives when you purchase a home solar battery and enroll in APS’ Residential Battery Pilot program. Learn more here.
• Mohave Electric Cooperative (MEC) SunWatts Renewable Energy Incentive Program: Incentive of five cents per watt (or up to $2,500) for residential and small commercial solar panel systems less than 50 kW in size. Learn more here.
• MEC Battery Rebate: MEC also offers a solar battery system rebate up to $500 for qualifying battery storage installations. Learn more here.
• Sulphur Springs Valley Electric Cooperative Solar Water Heating: Rebate of 50 cents per annual kWh saved on qualifying solar water heaters. Learn more here.

• Salt River Project Demand Management System Rebate: Get a $250 rebate on your purchase and installation of a demand management solar panel system. Learn more here.

Most Arizona utilities also offer rebates for other energy-efficiency home improvement upgrades like HVAC systems, home energy audits, windows and more.

Which Tax Incentives Are Best in Arizona?

At this point, we’ve discussed all of Arizona’s solar incentives in full. If you’re installing solar panels in the Grand Canyon State, we recommend taking advantage of as many solar perks as you can.

However, you may not get the chance to apply to every eligible incentive due to application deadlines or restrictions. If you’re wondering which incentives you should prioritize, here’s our ranking:

• Federal Solar Tax Credit: This is the biggest solar benefit, worth a whopping 30% of your total solar system price. Applying doesn’t take you too much time and it can save you thousands of dollars.

• Arizona Solar Energy Tax Credit: The process is very similar to the federal tax credit and is worth 25% of your solar system cost. The Arizona Solar Tax Credit can save you an extra $1,000 on your solar panel purchase, so be sure to prioritize applying.

• Local Rebates: Aside from the statewide tax credit, the state of Arizona doesn’t offer a ton of solar incentives. But some local utilities and municipalities still do. If you don’t see your utility on this list, give it a quick call to see if they offer any perks for solar homeowners — it could save you several thousand dollars.

• Net Billing: While net billing in Arizona isn’t as favorable as net metering in other states, free money is free money. You don’t have to do much to have it set up. Your solar panels do all the work and you see savings on your energy bills. It’s as easy as that!

What’s the Near-Term Outlook for More Incentives in Arizona?

It seems as though Arizona is in the process of de-incentivizing solar rather than making it more attractive for homeowners — likely because it’s close to meeting its RPS goal.

Many homeowners are already reaping the benefits of going solar in Arizona, with the state ranked fifth highest for solar installations.⁹ Arizona saw the largest increase in residential solar installations in the U.S. in 2021, with more than 250 megawatts (MW) installed.

Because of solar popularity and profitability, the state doesn’t seem to see the need to continue offering incentives for people to go solar. It’s unfortunate but understandable. And going solar is still well worth it for Arizona residents.