These States Will Exempt Your Solar Panels From Property Taxes And Sales Tax

Some states exempt the cost of solar panels from assessed property taxes. Schmidt-Z/Getty Images

In addition to helping the environment, solar panels can save on your electricity bills. Tax credits and incentives reinstated by the Depreciation Act make the deal even more pleasant.

But will this new solar system cost you more in state property or sales taxes? Installing solar panels generally increases the value of your home and leaves you vulnerable to higher assessments and taxes.

However, many states exempt residential solar panels from property taxes, allowing you to add value to your home while keeping the same tax base or limiting increases. Other states offer sales tax exemptions on the purchase of solar equipment, and some states offer exemptions for both types of taxes.

Learn everything you need to know about solar panels, sales, and property tax exemptions.

Learn more about solar upgrades:

What is property tax?

Property taxes are fees charged to individuals and corporations to own certain types of property. The most common property tax is for property or real estate (buildings or land), but it can also apply to property such as boats, cars, and other vehicles.

Property taxes are generally "ad valorem" taxes, which means that the taxes are based on the appraised value of the property. As the assessed value of the property increases, so does the property tax (depending on the property's appraisal rules).

Property taxes in the United States are administered by state and local governments. Property taxes support programs like law enforcement, fire protection, schools, libraries, and other local infrastructure. There is no federal estate tax.

According to 2020 Census data provided by the Tax Foundation, US property tax rates range from just 0.31% in Hawaii to 2.21% in New Jersey.

How much are solar panels for my home worth?

According to the National Renewable Energy Laboratory, for every $1 saved annually in utilities, your home's value increases by $20.

According to data from the Energy Information Administration, the average monthly electricity bill in the United States was In 2022 it was $137. If your solar panels were capable of providing all that electricity, you would save $1,644 a year.

Using the NREL "$20 for $1" rule above with 2022 supply data, a new solar system would add $32,880 to the average American home. Of course, the increase in value of your home depends on many factors: the location and size of your home, the type of solar system, local electricity rates and building codes, net billing in your state.

How do solar panels affect property taxes?

Solar panels can add value to your home. If a home improvement project increases the value of the property, your local government may reassess the value of the property to determine the new property tax rate.

Without laws exempting solar panels from property tax increases, the increased value of your new home could result in increased property taxes.

For example, another common way to estimate the impact of solar panels on your home's value is that they increase by an average of 4.1%. It is based on a 2019 Zillow survey.

If you live in Texas and own a $500,000 home, you currently pay $8,300 a year in property taxes at 1.66 percent.

If the new solar panels add 4.1% to the value of this home, it would be assessed at $520,500, which could increase your property taxes by $8,430, or $340 per year. Fortunately for Texans, solar panels are 100% exempt from property tax increases.

How do property tax credits for solar panels work?

A property tax exemption for solar panels can deduct the cost of your solar panels, or a portion, of your home's assessed value. If your home is assessed at $300,000 and you only install $20,000 worth of solar panels, the property tax exemption will bring your home's assessed value to $300,000 instead of $320,000.

In most cases, it is sometimes necessary to apply for a property tax exemption before installing solar panels. Visit your state tax or tax office for information on the property tax exemption application process in your state or city.

How does the sales tax exemption for solar modules work?

Exemption from solar sales tax means that purchased equipment such as solar modules, inverters, rack systems, or optimizers are not subject to regular local excise taxes.

Most states impose a sales tax on the purchase of goods and services. These state taxes range from 2.9% in Colorado to 7.25% in California. Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) do not charge sales tax on purchases.

As with property tax exemptions, many states require a sales tax exemption application for solar systems.

Which states exempt solar modules from property and sales tax?

32 of the 50 US states and Washington, DC have some property tax or exemption for solar panels. Some states offer grants for a limited time, such as b. A 10-year property tax break, while others will be exempt from solar panels forever (or until state politicians change the law).

Additionally, 16 states offer a limited sales tax exemption for solar energy systems. Some sales tax exemptions include only solar panels, others exempt everything except transformers and control equipment, and still others exempt all related solar equipment.

Most property tax exemptions cover the full cost of the solar installation, but some are partially exempt based on a percentage of the cost. State and local laws can change quickly or be affected by court decisions: An August 2022 Missouri Supreme Court decision exempted state solar property tax.

Use the information and links below to review the laws in your state or territory regarding property and sales tax exemptions for solar panels. Note that this table includes tax credits for personal solar systems . Some states provide exemptions for large industrial solar installations, but not for residential solar panels.

Note: This chart is correct as of April 14, 2023. State laws may change after this date. Check with your state tax office for the latest tax-exempt rules for residential solar.

Do solar panels increase property taxes in non-exempt states?

Solar panels can increase your property taxes in states and cities where solar power is not exempt from property taxes, but it depends on the assessment process specific to your location.

In general, adding solar panels to your home will increase property taxes in states that do not have property tax exemptions for solar systems. If your state is not exempt from property taxes, you should contact your local tax attorney to find out how solar panels will affect your property taxes. To find your local assessor, search for your county name, state name, and the word "assessor" on Google.

Why do different states and cities have different property tax exemption laws for solar panels?

Federal support for residential solar power varies from state to state and city to city. Although the US Department of Energy strongly encourages local governments to support solar power, it is up to local elected officials to enact tax-exempt laws for solar installations.

"Today, 70 million Americans could save money with rooftop solar, but only about 4 million have rooftop solar," Susan Leta, director of policy and strategy research at solar energy leader SunPower, told CNT.

Letha continued: “Many legislators in many states are looking at the consumer value and environmental benefits of solar power. They have structured tax policies and other incentives to reduce the cost of technology so that more users can benefit.

In some cases, when a state does not provide solar incentives, local governments step in to fill the gap. For example, Ohio does not offer tax breaks for solar power, but the cities of Cleveland and Cincinnati offer significant local tax breaks.

Tax laws for solar energy systems can vary from one state legislature to another. If you support solar tax incentives and your state does not offer them, contact your state legislator to let them know what you think.