Sales and property tax exemptions for home solar power
Tax exemptions are solar tax incentives that can reduce either the upfront or long-term cost of adding solar panels to your home. Unlike income tax credits, you do not need to have income to claim these incentives.
There are two types of tax exemptions available: solar sales tax exemptions and solar property tax exemptions.
Solar sales tax exemptions reduce the upfront cost of going solar. If you live in a state with sales tax, you could pay between 2.9% and 9.5% sales tax on the cost of a solar installation. 17 states exempt that purchase from sales tax, and five other states don’t have sales tax at all.
Solar property tax exemptions reduce tax bills that property owners would have to pay if the value of their solar systems were added to the tax basis of their homes. That’s a complicated way of saying that solar adds value to your home, and these exemptions make sure you don’t have to pay extra taxes on that value.
In this article, we provide a list of the tax exemptions available by state, then go on to describe how they work to save you money on a home solar installation.
Tax exemptions for home solar energy systems by state
States that offer tax exemptions are committed to helping people go solar and save money. The table below lists every state in the country, along with the status of their solar tax exemptions.
|State||Property Tax Exemption||Sales Tax Exemption|
|Alabama||No exemption||No exemption|
|Alaska||Local option||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||Exemption for large systems only||No exemption|
|Nevada||No exemption||No exemption|
|New Hampshire||Local option||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||Local option - 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||Only for systems greater than 2MW|
|Vermont||100% exempt||100% exempt|
|Virginia||Local option||No exemption|
|Washington||No exemption||100% exempt up to 10kW|
|Washington DC||100% exempt||No exemption|
|West Virginia||No exemption||No exemption|
|Wisconsin||100% exempt||100% exempt|
|Wyoming||No exemption||No exemption|
How solar property tax exemptions work
Houses that generate their own renewable energy from solar photovoltaic systems are worth more than boring old houses without solar. The thing is: it’s hard to pin down exactly how much value solar adds to homes, and assessors don’t seem to be able to agree on a single method.
A recent study from Zillow suggested a 4% increase. That seems strange, since houses can have vastly different values before adding solar panels, and the same sized system probably shouldn’t increase that value differently based on the initial assessed value of the home.
More robust studies have suggested a first-year home value increase about equal to the cost of the system after incentives, with the additional value decreasing with the years as solar panels age.
The good news is twenty-nine states have statewide rules exempting some or all of the value added by solar panels from additional local property taxes. Four other states allow local governments to set their own solar property tax incentives.
Do solar panels increase property taxes in states without exemptions?
While we don’t have specific data for real property tax increases from adding solar in states without solar property tax abatements or exemptions, we can look at the additional taxes that could be assessed based on the value of an average solar system.
According to 2016 data from ATTOM Data solutions collected by mortgagecalculator.org, residential property taxes in states without personal property tax exemptions for solar projects ranged from 0.48% in Alabama to 1.89% in Pennsylvania.
So, for an average solar PV system costing $13,000 after financial incentives like the federal solar investment tax credit (ITC), a person who added solar to their home in one of those states could expect to be assessed an additional $62 to $245 in the first tax year after installation.
How solar sales tax exemptions work
States that value having homeowners generate clean energy offer sales tax exemptions based on the cost of a home solar project.
If the average system costs about $18,000 before taxes and incentives, the sales tax can tack on an additional cost, between $800 and $1,300, in states without solar sales tax exemptions (based on 2020 sales tax rates from the non-profit Tax Foundation).
Conversely, in the states that do offer sales tax exemptions for solar, people who add solar to their homes stand to save between $980 and $1,700 on the same system.
Tax exemptions show a state’s commitment to helping people go solar
We outlined above how these solar tax exemptions can save you thousands of dollars in upfront and long-term costs on a solar installation.
Another thing they do is show that a state is serious about helping homeowners to make going solar a good financial decision. That makes the state likely to offer other great incentives, too.
Learn more: 2020 Guide to solar incentives by state
According to numbers from actual system quotes generated by our solar panel calculator, solar panels installed in states that offer one or both solar tax exemptions have a payback period that is nearly 2 years shorter than states that don’t offer exemptions.
That’s a great benefit for people living in those states, but average numbers don’t always tell the full story. Use our calculator to find out how much solar can save on your specific roof and find local installers with great reviews.
Author: Ben Zientara | Solar Policy Analyst and Researcher
Ben is a writer, researcher, and data analysis expert who has worked for clients in the sustainability, public administration, and clean energy sectors.