Arizona Solar Tax Credit Guide 2026: Federal ITC, State Credits & Utility Rebates

If you’re searching for the Arizona solar tax credit in 2026, here’s the headline number: you can save 30% or more on the total installed cost of a solar panel and battery storage system by stacking federal, state, and local incentives. On a typical $25,000 residential solar-plus-battery installation, that translates to more than $8,500 in direct tax credits alone — before you even account for the sales tax exemption and property tax protection that Arizona provides on top.

Arizona remains one of the best states in the country for going solar, and 2026 is an especially strong year to act. The federal Investment Tax Credit is locked at its full 30% rate through 2032, the Arizona state solar energy credit is still on the books, and both APS and SRP continue to offer programs that reward battery storage adoption. But the landscape is complex enough that many homeowners leave money on the table simply because they don’t understand how to layer each incentive correctly.

This guide walks through every Arizona solar tax credit, rebate, and exemption available in 2026 — and shows you exactly how to combine them for maximum savings.

Federal Solar Investment Tax Credit (ITC): The Biggest Incentive in 2026

The federal Investment Tax Credit is by far the most valuable solar incentive available to Arizona homeowners. Thanks to the Inflation Reduction Act (IRA) signed into law in August 2022, the ITC was extended and expanded in ways that directly benefit anyone installing solar panels or battery storage in 2026.

How the 30% Federal ITC Works

The federal solar tax credit allows you to deduct 30% of the total installed cost of a solar energy system from your federal income taxes. This is a dollar-for-dollar reduction in the taxes you owe — not a deduction from taxable income, but an actual credit against your tax bill.

Here’s a straightforward example. If your solar panel and battery storage system costs $25,000 fully installed, the federal ITC gives you a $7,500 tax credit. If you install a smaller solar-only system for $15,000, the credit is $4,500. The credit applies to the full cost of the system, including equipment, labor, permitting fees, and sales tax paid (though in Arizona, solar equipment is sales-tax exempt at the state level, which we cover below).

What Qualifies for the Federal Solar Tax Credit in 2026

The ITC covers a broad range of solar and energy storage equipment:

• Solar photovoltaic (PV) panels — the panels themselves, inverters, wiring, mounting hardware, and installation labor
• Battery storage systems — this is the big change from the IRA. Since 2023, standalone battery storage systems are eligible for the 30% ITC even if they are not paired with solar panels. The battery must have a capacity of at least 3 kWh to qualify.
• Solar water heaters — solar thermal systems used to heat water for residential use
• Balance-of-system equipment — electrical panels, monitoring systems, and other components necessary for the system to function

The system must be installed at a property you own and use as a primary or secondary residence. Rental properties do not qualify for the residential ITC (though there is a separate commercial ITC for rental property owners). You must also own the system outright — leased solar panels or power purchase agreements (PPAs) do not qualify because the leasing company claims the credit instead.

ITC Step-Down Schedule: Why 2026 Is a Smart Year to Act

The IRA locked the residential solar ITC at 30% through the end of 2032. After that, the credit begins to phase down:

• 2022 through 2032: 30% of installed cost
• 2033: 26% of installed cost
• 2034: 22% of installed cost
• 2035 and beyond: 0% (the residential credit expires unless Congress renews it)

This means you have a solid window through 2032 to claim the full 30% credit, but there is no advantage to waiting. Utility rates continue to climb, equipment prices are stable, and installer availability in Arizona is strong right now. Acting in 2026 locks in the highest credit rate while giving you years of energy savings that compound over time.

What If Your Tax Liability Is Less Than the Credit?

One of the most common questions Arizona homeowners ask is: what happens if I don’t owe enough in federal taxes to use the full credit in one year? The answer is encouraging — the federal solar ITC carries forward to future tax years. If your system generates a $7,500 credit and you only owe $5,000 in federal income taxes for 2026, the remaining $2,500 rolls forward to your 2027 tax return.

The credit is nonrefundable, meaning you won’t receive a check from the IRS for the unused portion. But the carryforward provision ensures you won’t lose it. Most Arizona homeowners with typical household incomes are able to use the full credit within one to two tax years.

Arizona State Solar Energy Credit: An Extra $1,000 Off Your Taxes

On top of the federal ITC, Arizona offers its own state-level solar energy credit that provides additional savings. While the dollar amount is smaller than the federal credit, it’s still free money that reduces your total out-of-pocket cost.

Arizona’s 25% State Solar Tax Credit (Capped at $1,000)

The Arizona Residential Solar Energy Credit allows homeowners to claim 25% of the cost of a solar energy device, up to a maximum credit of $1,000. This credit applies to your Arizona state income tax return and is separate from the federal ITC — you can claim both.

Qualifying equipment includes solar photovoltaic panels, solar water heaters, and other solar energy devices as defined by Arizona statute. Standalone battery storage systems may not qualify for the Arizona state credit on their own, as the state statute specifically references “solar energy devices.” If your battery is installed as part of an integrated solar-plus-storage system, the solar components clearly qualify. Consult your tax professional about how the battery portion should be treated.

5-Year Carryforward for the State Credit

Like the federal ITC, the Arizona state solar credit is nonrefundable — it reduces the state taxes you owe but won’t generate a refund on its own. However, any unused credit carries forward for up to five years. Given that most Arizona homeowners owe at least $1,000 in state income taxes annually, the full credit is typically used in the first year.

To claim the credit, you file Arizona Form 310 with your state tax return. Your solar installer should provide you with the documentation you need, including the total cost of the solar energy device and proof of installation.

Arizona Solar Sales Tax Exemption: Savings Most Homeowners Overlook

Here’s an incentive that flies under the radar but delivers meaningful savings: Arizona exempts solar energy devices from the state’s transaction privilege (sales) tax. The state sales tax rate is 5.6%, and on a solar installation costing $15,000 to $30,000, this exemption saves you between $840 and $1,680 at the state level.

Some cities and counties in Arizona may still apply local transaction privilege taxes to portions of a solar installation, so your actual savings depend on your municipality. But the state-level exemption alone is significant — it’s the equivalent of getting a free upgrade to a larger system or better battery.

This exemption is automatic. You don’t need to file any special paperwork. Your solar installer should not be charging you Arizona state sales tax on qualifying solar equipment and installation labor. If you see state sales tax on your proposal or invoice, ask your installer to correct it.

Why the Sales Tax Exemption Matters More Than You Think

Many homeowners fixate on the ITC percentage and overlook the sales tax exemption entirely. But consider this: on a $25,000 system, the 5.6% state sales tax exemption saves you $1,400. That’s $1,400 you don’t pay upfront, which means your total installed cost is lower before you even apply the federal and state tax credits. The tax credits then apply to the net cost, creating a compounding savings effect.

Arizona Solar Property Tax Exemption: Protect Your Home Value

Installing solar panels and battery storage increases your home’s market value. Studies consistently show that solar homes sell for a premium — the Lawrence Berkeley National Laboratory found that buyers pay roughly $4 per watt of installed solar capacity as a price premium, which translates to roughly $24,000 to $32,000 in added value for a typical 6 to 8 kW system.

Here’s the good news for Arizona homeowners: the state provides a 100% property tax exemption for solar energy installations. This means the added home value from your solar system will not increase your property tax assessment. You get the full resale value boost without paying a penny more in annual property taxes.

This exemption is codified in Arizona Revised Statutes and applies automatically to residential solar energy devices. You do not need to apply separately, though it’s wise to verify with your county assessor’s office that your installation is correctly classified after it’s completed.

APS Solar and Battery Storage Programs in 2026

Arizona Public Service (APS) is the largest electric utility in the state, serving the greater Phoenix metro area and much of central and northern Arizona. APS has historically offered rebates and incentive programs for solar and battery storage, though these programs change from year to year and are often capacity-limited.

APS Battery Storage Rebates

APS has offered battery storage rebates in various forms over the past several years, including demand response programs where homeowners with batteries allow APS to dispatch stored energy during peak grid demand periods in exchange for bill credits or upfront incentives. These programs are typically announced on an annual or seasonal basis and may have enrollment caps.

For 2026, check the APS website or call their renewable energy line directly to confirm current program availability. Rebate amounts and structures can change between program cycles, and popular programs fill quickly. Your battery installer should also be aware of any active APS incentive programs.

APS Time-of-Use Rates and Battery Arbitrage

Even without a specific rebate program, APS time-of-use (TOU) rate plans create a strong financial incentive for battery storage. APS peak rates during summer afternoons can be three to four times higher than off-peak rates. A battery allows you to store cheap solar energy generated during midday and use it during expensive peak hours in the late afternoon and evening, a strategy known as energy arbitrage. This can save APS customers hundreds of dollars per year on electricity bills, effectively acting as an ongoing incentive beyond the one-time tax credits.

SRP Solar and Battery Incentives in 2026

Salt River Project (SRP) serves the East Valley, Scottsdale, and parts of greater Phoenix. SRP is a public utility and operates differently from APS in its approach to solar and battery incentives.

SRP Demand Management and Battery Programs

SRP has offered various demand management programs that reward homeowners for reducing grid consumption during peak periods. Battery storage plays directly into these programs — a home battery can automatically reduce your draw from the grid during SRP peak demand windows, lowering the demand charges that SRP levies on solar customers.

SRP’s rate structures include customer generation plans that may have demand-based charges. A battery can help mitigate these charges by ensuring you draw minimal power from the grid during peak periods. The economics of a battery under SRP rate plans can be highly favorable, particularly for homeowners on plans with high demand charges.

Check SRP’s current program offerings for 2026 to see if enrollment-based incentives or rebates are available. Like APS, SRP programs can change between cycles, so current-year confirmation is important.

How to Stack Arizona Solar Incentives for Maximum Savings

The real power of Arizona’s solar incentive landscape is in stacking — combining every available credit, exemption, and rebate into a single installation. Here’s how the math works on a realistic 2026 installation.

Example: $25,000 Solar + Battery System in Phoenix

Let’s walk through a complete incentive stack for a homeowner installing a 7 kW solar panel system with a 13.5 kWh battery in the Phoenix metro area:

• Gross system cost: $25,000
• Arizona sales tax exemption (5.6%): -$1,400 (you never pay this amount)
• Effective cost before credits: $25,000 (the exemption prevents additional cost, so your base is the quoted price without state sales tax)
• Federal ITC (30% of $25,000): -$7,500
• Arizona state solar credit (25%, capped at $1,000): -$1,000
• Property tax increase: $0 (exempted)

Your net cost after all incentives: approximately $16,500

That’s a 34% reduction from the gross installed cost through tax credits alone, plus you avoided $1,400 in sales tax and will never pay higher property taxes on the added home value. If an APS or SRP rebate or demand management incentive is available in your area, savings go even further.

The Order Matters for Tax Filing

When filing your taxes, keep in mind that the federal ITC is calculated on the cost of the system as you paid it. The Arizona sales tax exemption reduces what you would have paid at the register, so it’s already reflected in your installed cost. You claim the federal ITC on your federal return (IRS Form 5695) and the Arizona state credit on your state return (Arizona Form 310). These are independent of each other — claiming one does not reduce the other.

Common Mistakes Arizona Homeowners Make With Solar Tax Credits

After working with thousands of Arizona homeowners navigating solar incentives, we see the same errors come up repeatedly. Avoid these costly mistakes:

Confusing a Tax Credit With a Tax Refund

The federal ITC and Arizona state credit are nonrefundable tax credits. They reduce the taxes you owe, but they won’t generate a refund beyond what you’ve already paid in. If you owe $4,000 in federal taxes and claim a $7,500 ITC, you’ll owe $0 in taxes that year and carry the remaining $3,500 forward — you won’t receive a $3,500 check.

Claiming the Credit on a Leased System

If you lease your solar panels or sign a power purchase agreement (PPA), the leasing company owns the system and claims the ITC. Only homeowners who purchase their system outright (or finance it with a solar loan where they retain ownership) can claim the federal and state tax credits. This is one of the strongest arguments for buying rather than leasing.

Forgetting to File the Correct Forms

The federal ITC requires IRS Form 5695 (Residential Energy Credits), which you attach to your standard 1040 return. The Arizona state credit requires Arizona Form 310. Forgetting either form means you won’t receive the credit, even if you’re otherwise eligible. If you use tax preparation software, make sure it prompts you for energy credits — many programs include this automatically, but it’s worth verifying.

Missing the Standalone Battery Eligibility

Since the Inflation Reduction Act took effect, standalone battery storage systems with 3+ kWh capacity qualify for the 30% federal ITC even without solar panels. Some homeowners and even some installers are unaware of this change. If you already have solar panels and are adding a battery in 2026, the battery installation qualifies for the federal credit on its own. Don’t leave that money on the table.

Waiting Too Long and Missing Utility Programs

APS and SRP incentive programs often operate on a first-come, first-served basis with annual enrollment caps. If you spend months deliberating while a utility rebate program fills up, you may miss out on incentives that won’t be available again until the next program cycle. Once you’ve decided to go solar, move promptly on utility program enrollment.

How to Get Started: Find a Qualified Arizona Installer

The incentives are clear, and the savings are substantial. The next step is connecting with a qualified, licensed solar and battery storage installer in your area who can provide an accurate quote and help you navigate the tax credit process.

We maintain a vetted directory of Arizona battery storage installers covering every major city in the state, from Phoenix and Tucson to Scottsdale, Mesa, Chandler, Gilbert, and beyond. Each listed installer is experienced with both solar and battery installations and can walk you through the full incentive stack.

For a broader view of all available programs, visit our Arizona solar incentives page for the latest updates on utility rebates, program enrollment windows, and new incentive announcements for 2026.

Arizona Solar Tax Credits in 2026: The Bottom Line

Arizona homeowners have access to one of the most generous solar incentive packages in the country. Between the 30% federal ITC, the $1,000 Arizona state solar credit, the 5.6% sales tax exemption, and the property tax exemption, you can reduce the effective cost of a solar-plus-battery system by 35% or more compared to the sticker price. Layer in utility-specific programs from APS or SRP, and the economics become even more compelling.

The federal ITC is stable at 30% through 2032, so there’s no immediate deadline panic. But utility rates aren’t getting cheaper, incentive programs have limited slots, and every month you wait is a month of energy savings you miss. The best time to go solar in Arizona was yesterday. The second best time is now.

Find a qualified battery storage installer in your city and get a free quote to see exactly how much you can save in 2026.