The Arizona Solar Tax Credit contains two parts. First, the Arizona government provides a $1,000 Tax Credit for solar systems. Second, the Federal government provides a 30% Tax Credit for residential solar systems called the Residential Clean Energy Credit. The Arizona Solar Tax Credit makes it more affordable for Arizona residents to purchase a solar system.
2022 Extension and Increase of Arizona Solar Tax Credit
The House of Representatives Bill 5376 (”H.R. 5376”), also known as the “Inflation Reduction Act of 2022”, became law on August 16, 2022. It updated the Residential Clean Energy Credit, which contains the Tax Credit for residential solar panel systems. The Tax Credit on residential solar panel systems was extended to December 31, 2034 and increased to 30%.
This is the Tax Credit step down program:
- After December 31, 2021, and before January 1, 2033, the Tax Credit will be 30 percent;
- After December 31, 2032, and before January 1, 2034, the Tax Credit will be 26 percent; and
- After December 31, 2033, and before January 1, 2035, the Tax Credit will be 22 percent.
For more information, view our page on the Solar Tax Credit Extension.
What is a Tax Credit and How Does it Work?
The Arizona Solar Tax Credit is a deduction of your taxable liability to a government tax collecting agency. When we say there is a Federal tax credit of 30%, we mean that the government will grant you a tax credit equal to 30% of the total solar system cost. The tax credits only apply to homeowners that purchase their solar system through a loan or cash purchase. With a loan, the 30% credit applies to the total loan amount. With cash, the 30% credit applies to the total amount of cash paid up front for the system. For example, if a homeowner purchases a solar system that costs $20,000 to finance, the homeowner will receive $6,000 in Federal tax credits and $1,000 in Arizona tax credits, totaling $7,000 in total tax credits.
Who is Eligible for the Arizona Solar Tax Credit?
Those who make energy efficiency improvements to their home, like solar systems, qualify for the tax credits. The definition of a “home” includes a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home that conforms to Federal Manufactured Home Construction and Safety Standards. The home where solar is installed does not have to be your main or primary home to receive the credit.
How Do I Claim My Tax Credits?
When you file your taxes, you must also file IRS Form 5695, which is the Residential Energy Credits form. Form 5695 is used to claim tax credits for solar systems, heat pumps, solar water heating, small wind turbines, and fuel cells. You can find Form 5695 and accompanying instructions on the IRS Website. When you have calculated the total amount of tax credits you will receive on Form 5695, enter that value into Schedule 3 (Form 1040 or 1040-SR), line 5, or Form 1040NR, line 50. Learn more about Form 1040 on the IRS Website.
Battery Storage Technology Tax Credit Starting in 2023
The Inflation Reduction Act added a Solar Battery Tax Credit. Previously, taxpayers could not claim home batteries like the Tesla Powerwall when they bought them with solar power system. To qualify, the battery must have storage of at least 3 kilowatt-hours (kWh) or more. This credit can be claimed for batteries installed at any home used as a residence by the taxpayer. Keep in mind, this Battery Storage Technology Credit does not start until January 1, 2023. Solar Batteries bought before that date will not qualify for the Solar Battery Tax Credit.
Arizona Solar Tax Credit – More Information
Solar roofing tiles, like the Solar Roof made by Tesla, qualify for the Tax Credit. This means that shingles, which are both solar panels and roofing, qualify for the Solar Tax Credit.
Non-solar roofs do not qualify for the Tax Credit and Section 25D(e)(2) of the law makes this clear. Be aware, because many solar salespeople across the country falsely advise homeowners that they can take the 30% tax credit on non-solar roofing. They think that homeowners can take the 30% Tax Credit on a roof if they sell the homeowner a solar system and roof in the same deal. They are wrong. It is important that homeowners do their own research when going solar. Because, many solar salespeople will embellish certain certain aspects of the purchase to make everything appear more attractive.
Residential Clean Energy Credit – Other Qualifying Items
In addition to solar panel systems, the following items also qualify for the Residential Clean Energy Credit:
- Qualified solar electric property expenditures,
- Qualified solar water heating property expenditures,
- Qualified fuel cell property expenditures,
- Qualified small wind energy property expenditures, and
- Qualified geothermal heat pump property expenditures.
Qualified Solar Electric Property Expenditures are purchases of property that use solar technology to generate electricity for a household.
To qualify, Solar Water Heaters must be certified for performance by the non-profit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the State in which such property is installed. Labor costs, piping, and wiring associated with installing the solar system are still included in the Tax Credit.
Cooperative Housing or Condominiums
If people live in cooperative housing or condominiums, each individual owner can claim the 30% tax credit in proportion to their ownership. So, if there are 100 units, 1 owner can claim 1% of the total Tax Credit for the entire project. The Tax Credit can only be claimed in the year the solar system was installed, and subsequent years if it is carried over. It cannot be claimed for years prior to the installation year.
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