Guide to Sales and Property Tax Exemptions for Solar

Going solar at home is a major decision. There’s no doubt, buying a new solar system can be a serious expense up front. There are ways to make the up-front cost more feasible and the long-term economics better. One way is taking advantage of tax exemptions.

Sales and property tax exemptions for home solar panels (some states provide both) help keep costs lower and the payback period—the time it takes for energy savings to surpass the initial investment of the system—shorter. Knowing what you owe and what you will owe, including to the government, is a definite factor in helping you make the right decision.

What Are Solar Property Tax Exemptions?

Should you be penalized for improving the value of your home or property? Adding solar panels almost always increases the property value of a home or business. Studies by Cal Berkeley and Zillow show property values and resale values increase with solar power systems. (Zillow found homes with solar panels sold for 4.1% more than comparable homes.) Property tax exemptions help negate annual, longer-term costs with solar. When a state or locality has a property tax exemption for a solar system in place, your tax bill doesn’t include the added property value from your solar panels. 

Property tax exemptions may be implemented on a state or local level. They may be full or partial, permanent or temporary, depending on the state. 

In all, 34 states plus Puerto Rico and Washington, D.C., have property tax exemptions in effect, but they’re subject to change. For instance, in California, the property tax exemption on solar was recently extended from the end of 2024 to Jan. 1, 2027.

What Are Solar Sales Tax Exemptions?

Normally, when you have labor or service done on your property, or simply buy products—in this case, panels, inverters, batteries, down to all the literal and figurative nuts and bolts—you pay sales tax on all of it. That’s not always the case with solar panels.

As of September 2024, 18 states have sales tax exemptions on buying, and the installation of, new residential and commercial solar power systems. The incentive reduces the upfront costs of going solar. The exemption typically applies to all solar equipment, such as batteries. 

For example, if your state has a 5% sales tax on new consumer goods and you buy a system worth $20,000, you won’t pay the $1,000 sales tax. State sales taxes range from 2.9%-9.5%. That could represent an additional $580 to $1,900 on the $20,000 purchase.

What States Have Solar Property and Sales Tax Exemptions?

Five states have no state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Another 18 states exempt at least some solar systems from sales tax: Arizona, Colorado, Connecticut, Florida, Iowa, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Ohio, Rhode Island, Tennessee, Utah, Vermont, Washington, and Wisconsin.

Here are the states and territories in the US that have some sort of property tax exemption as of September 2024.

Note: The details of tax exemptions may vary state to state and may have changed since this information was gathered. Ensure you know how your state's exemption works and consult your own legal and tax advisors if needed.

You can find more information or state-by-state details from resources such as the Solar Energy Industries Association and N.C. State University’s Database of State Incentives for Renewables and Efficiency.

What’s the Difference Between Tax Exemptions and Other Incentives, Credits, and Rebates?

Tax exemptions are just one type of incentive regarding solar power and installing new systems or equipment. If you’re new to solar, trying to keep tax exemptions, tax credits, rebates, and other programs can be confusing. 

With tax exemptions, you don’t pay taxes on what you typically would, whether that’s sales tax or the value solar panels add to your home. At the federal, state, and local levels there are more programs which may help the upfront affordability and the long-run finances of going solar. 

The federal tax credit for new solar construction, including residential solar, is a 30% tax credit for anyone installing systems from now to 2032.

The credit decreases to 26% in 2033, to 22% in 2034, and expires in 2035. The program was extended for 10 years in the Inflation Reduction Act in 2022. Use IRS Form 5695 to file for the federal solar tax credit.

Tax credits work to cover some of the tax bill you already owe, while a tax exemption keeps that tax bill from growing in the first place. A rebate, on the other hand, is money you receive back that’s unrelated to your tax bill. 

There are many rebate programs at state and local levels. Some rebates are statewide incentives. Some are run by counties, regions, or power companies. You can search all incentives by state or zip code at NC State’s Clean Energy Technology Center’s site.

Some examples of rebate programs are:

• In Austin, Texas, Austin Energy gives its customers a $2,500 rebate for installing a solar panel system.
• In Lansing, Michigan, the Lansing Board of Water and Light gives customers a rebate up to $2,000 for a new solar system. 
• Energy Smart Colorado, which operates in 18 Colorado counties, has rebates up to $2,500 for solar projects and up to $500 for system tune-ups.

What Are ​​Solar Renewable Energy Credits?

Certain states have a separate solar incentive, solar renewable energy credits (SRECs), and markets in which homeowners and business owners can sell them to power companies. The SREC market price is set by supply and demand. They’re typically worth more where power companies, governments, or other end users are mandated to meet solar or renewable energy levels on their own, or else buy credits to make up for it. 

How Do I Maximize My Possible Solar Savings?

Making a move to solar the best financial decision possible is partly about the upfront expenses of the system and installation, and partly about what the system will do for you for years to come. The full economic picture is also a combination of working with someone who will help you find the right system for your home and life. Getting the right answers about taxes and other incentives is an important part of the whole discussion and decision. 

You can start out by going to our solar savings calculator or filling out our contact form. Palmetto’s experts will work with you, looking at your property, your current power bills, and how solar might be a fit for you. Reach out today.

FAQs

Does adding solar increase property value?

Adding solar energy to a home almost always adds property value and to the resale value. Studies show property values and resale values increase with solar power systems. In the vast majority of cases, this is one more way choosing residential solar is a sound financial decision which gets better in the long run.

How can I learn more about exemptions and other state and local programs?

Contacting Palmetto is one good answer. A reputable local solar installer should also be able to help. You can also search, including down to your zip code, in the Database of State Incentives for Renewables & Efficiency.

How long do I have to claim the federal solar tax credit?

You will be able to claim the annual federal tax credit in the year you have your solar panels installed. The program expires in 2035, unless it’s extended again.

Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.

About the AuthorAndrew GiermakWriter and Editor

Andrew joined Palmetto in Charlotte in August 2024. He’s been a writer in journalism, then in business, going back to almost the 20th century. He’s lived in Indiana, Virginia, Pennsylvania, Virginia again, and now North Carolina for the last 12 years. He likes golf. Is he good at it? Not so much.