Solar Property Tax Exemptions: A Comprehensive Guide

Solar property tax exemptions are a valuable financial incentive for homeowners to invest in solar panel systems under the federal residential solar energy credit scheme. Users installing solar energy systems between 2022 and 2032 are eligible to claim the 30% tax credit. Later, it would be decreased up to 26% for installations in 2033 and 22% in 2034.

In this article, we will explore what solar property tax exemptions are and how they work. We will also know the specific benefits these exemptions provide, helping you understand how they can impact your overall savings. Additionally, which states offer these incentives, and why do they vary by location?

What Are Solar Property Tax Exemptions?

Solar property tax exemptions are financial incentives provided by state and local governments to individuals and businesses that reduce upfront or long-term costs of installing additional solar panels.

When the value of your home increases due to solar system installation, the property taxes will be lower than the pre-installed value.

These are the main types of solar tax exemptions available:

1. Solar property tax exemptions allow homeowners and businesses to lower their tax bills, which the property owner is required to pay due to the added value of the solar panels. This type of tax exemption exists at the city or country level and helps to detect the excess value of solar panel systems from the estimated value for tax purposes.
2. State governments prepare solar sales tax exemptions to help homeowners reduce the upfront costs associated with solar panel installation. These taxes exist at the state level and make your investment much more affordable.

How Do Solar Property Tax Exemptions Work?

Let’s explore the working of the two main types of solar tax exemption by considering a simple example:

1. Solar Property Tax Exemptions:

The property taxes are collected locally, where state governments are allowed to grant the local taxing authorities the option of allowing property tax incentives for solar. Currently, 36 states in the US provide exemptions on property tax.

Let’s consider a simple example of installing a solar PV system on your roof that adds a value of $20,000. Considering the state property tax of 1.5%, the increase in the property value will add up to $300 to your annual property taxes. Suppose, your state follows property tax exemption, you are freed from paying an extra $300 in taxes. In such scenarios, you wouldn’t own any more property taxes than expected, despite your place of residence adding more value to the real estate market.

2. Solar Sales Tax Exemptions:

Certain states honor homeowners who produce clean and renewable energy by offering sales tax exemptions based on the purchase value of home solar projects. The exemptions include solar panel purchases, solar batteries, and other variants of solar equipment, naturally lowering the overall purchasing costs. Few states might ask for size requirements to be eligible for solar tax exemption. Currently, 25 states offer solar sales tax exemptions.

For example, if you purchase a solar panel system for $20,000 and your state offers a 6% sales tax, then you will have to pay $21,200 in total. However, you will only pay $20,000 if your state has a solar sales tax exemption.

Individuals and companies will be eligible for property and sales tax exemptions to install solar energy panels onto a property. However, you must be a U.S. resident if you’re an owner of the solar panel system, to qualify for the tax exemptions.

Benefits of Solar Property Tax Exemptions

These are the main benefits of solar tax exemptions:

1. Cost Savings: In most states, the sales tax exemptions for solar panels reduce the overall purchasing and installation costs, which are then converted into considerable savings since the sales tax rates fluctuate from a modest amount to several percentage points.
2. Increased Adoption of Solar Panels: The tax exemptions are protection for homeowners against an increased property tax assessment due to the additional solar panels. Since the upfront and ongoing costs are reduced, a majority of individuals are motivated to prefer renewable energy sources and make effective plans to purchase and install solar panel systems.
3. Environmental Impact: As solar energy becomes more accessible and affordable, the renewable energy source is promoted and has a positive impact by contributing to a cleaner and sustainable environment. This is because users start adopting more solar panels due to solar tax exemptions, which mitigates the dependence on fossil fuels, thereby reducing their carbon footprint and lowering their energy costs.

Which States Have Solar Property Tax Exemptions?

Here is a detailed list of different states in the US tabulated below with information explaining if they provide solar property tax or sales tax:

State	Property Tax	Sales Tax
Alabama	YES	NO
Alaska	YES (Only Residential exemptions)	NO
Arizona	YES	YES
Arkansas	NO	NO
California	YES	NO
Colorado	YES	YES
Connecticut	YES	YES
Delaware	NO	NO
Florida	YES (Upto 80% of value exempted)	YES
Georgia	NO	NO
Hawaii	YES	NO
Idaho	YES (Only non-residential exemptions)	NO
Indiana	YES	NO
Lowa	YES (Exempted for 5 years)	YES
Kansas	YES	NO
Kentucky	NO	NO
Louisiana	YES	NO
Maine	YES	NO
Maryland	YES	YES
Massachusetts	YES (Exempted for 20 years)	YES
Michigan	YES	NO
Minnesota	YES	YES
Mississippi	NO	NO
Missouri	YES	NO
Montana	NO ($20,000–Exempted for 10 Years)	NO
Nebraska	YES	YES
Nevada	YES (Only non-residential exemption)	YES (Only non-residential exemption)
New Hampshire	YES (Only local exemption)	NO
New Jersey	YES	YES
New Mexico	YES (only for residential exemption)	YES
New York	YES (Only for local exemption)	YES
North Carolina	YES (Upto 80% of value exempted)	NO
North Dakota	YES (exempt for 5 years)	NO
Ohio	YES (Only non-residential)	YES
Oklahoma	NO	NO
Oregon	YES	NO
Pennsylvania	NO	NO
Rhode Island	YES	YES
South Carolina	YES	NO
South Dakota	NO	NO
Tennessee	NO	NO
Texas	YES	NO
Utah	NO	NO
Vermont	Yes (Exempt upto 50 kW)	YES
Virginia	Yes (Exempt upto 25 kW)	NO
Washington	NO	YES (Exempt upto 100 kW)
Washington DC	YES	NO
West Virginia	NO	NO
Wisconsin	YES	YES
Wyoming	NO	NO

Different states and cities have varying rules for tax exemption due to local government policies. Each state has its decision-maker to structure incentives and tax policies to reduce technology costs so that more consumers can enjoy the benefits.

Do Solar Panels Contribute to Increased Property Taxes in Certain States Without Exemptions?

Yes, There are few chances of property taxes getting increased in states while installing solar panels without any exemptions. This is because solar panel installation increases the expected property value, which can result in huge property taxes.

Remember that if you don’t reside in any of the above-mentioned states with a tax exemption, it doesn’t mean that your property taxes will increase after solar panel system installation.

Based on the information provided by ATTOM Data Solutions in 2016, the residential property taxes in states without any exemptions for solar projects varied from 0.48% in Alabama to 1.89% in Pennsylvania.

However, it is advised to contact your local assessor’s office to find out personally about how solar panels will affect your property tax if your state doesn’t provide any property tax exemptions.

How Do I Find Out if My State Offers a Solar Property Tax Exemption?

To find out if your state offers solar property tax exemption, it is important to refer to legitimate sources listed below that provide detailed information according to different states:

Ecowatch: Through Ecowatch, you will find a detailed guide on which states offer exemptions and specifications for each program.

Today’s Homeowner: In this platform, you can find a clear list of states that provide solar tax exemptions for properties and sales. Also, you will gain information on how to claim the exemptions and the average cost per watt for solar installation which varies according to each state.

EnergySage: You can find a detailed chart on EnergySage listing the states that provide detailed information about the states that offer solar tax exemption programs for residential and non-residential properties.

SolarReviews: Through SolarReviews, you can gather comprehensive information about the exemptions related to solar property tax and sales tax so that you can plan your investment accordingly and save money in the long run.

The Home Pros: It is easier to find the states offering exemptions on property tax and sales tax on the Home Pros platform, which includes a detailed list of all the states in the US such as Arizona, California, Colorado, and several others.

HVACDirect: The information provided on HVACDirect.com allows you to explore a detailed state-by-state breakdown of solar property tax and sales tax in a tabular form.