Updated 3 weeks ago

Tax exemptions for home solar power - how to save on sales and property taxes

Written by Ben Zientara , Edited by Catherine Lane

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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: 2021 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.

Written by Ben Zientara Solar Policy Analyst

Ben Zientara is a writer, researcher, and solar policy analyst who has written about the residential solar industry, the electric grid, and state utility policy since 2013. His early work included leading the team that produced the annual State Solar Power Rankings Report for the Solar Power Rocks website from 2015 to 2020. The rankings were utilized and referenced by a diverse mix of policymakers, advocacy groups, and media including The Center...

Learn more about Ben Zientara