Sales and property tax exemptions for home solar power

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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.

solar panels on a roof, in the background: a cloudy sky. in the foreground: a man's hands holding a calculator

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.

Find out how much you can save with solar
 - Author of Solar Reviews

Ben Zientara

Solar Policy Analyst and Researcher

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.

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