In addition to the 30% federal tax credit, Arizona homeowners who install solar panels can claim a state income tax credit equal to 25% of the system cost, capped at $1,000. While smaller than the federal ITC, the Arizona credit is easy to claim and stacks directly on top of the federal credit for maximum savings.
To see how the state credit combines with the full range of Arizona solar incentives, read our complete Arizona solar incentives guide. And to see how both credits affect your actual net cost, use our Arizona solar savings calculator.
What Is the Arizona State Solar Tax Credit?
Established under Arizona Revised Statutes (ARS § 43-1083), the Arizona residential solar energy credit allows homeowners to claim 25% of the cost of a qualifying solar energy device, up to a maximum of $1,000 per residence.
The $1,000 maximum is reached once your system cost exceeds $4,000 — meaning on any typical Arizona residential solar installation, you'll receive the full $1,000 credit.
| System Cost | 25% Credit | Actual Credit (Capped at $1,000) |
|---|---|---|
| $3,000 | $750 | $750 |
| $4,000 | $1,000 | $1,000 (cap reached) |
| $10,000 | $2,500 | $1,000 (capped) |
| $17,040 | $4,260 | $1,000 (capped) |
Who Qualifies?
To claim the Arizona solar tax credit, you must meet all of the following criteria:
- Arizona resident: You must be an Arizona state taxpayer filing an AZ income tax return
- System owner: You own the solar system — leases and PPAs do not qualify
- Primary or secondary residence: The system must be installed at your home, not a rental or investment property
- Qualifying equipment: The system must meet Arizona's definition of a "solar energy device"
- New installation: The system must be newly installed (not transferred from a prior home)
What Equipment Qualifies?
Arizona's definition of a qualifying solar energy device includes:
- Solar photovoltaic (PV) panels and systems
- Solar water heating systems
- Solar space heating systems
- Passive solar heating systems
- Solar daylighting systems
Battery storage may qualify if it is an integral part of the solar energy system. Consult a tax professional for guidance on specific battery configurations.
See Your Combined Credit Savings
Our calculator shows your federal ITC + Arizona state credit combined, so you can see your real net system cost.
Calculate My Savings →How to Claim the Arizona Solar Tax Credit
The Arizona solar tax credit is claimed on your Arizona state income tax return using Arizona Form 310 (Credit for Solar Energy Devices).
Step-by-Step Filing Instructions
- Gather documentation: Collect your final installation invoice showing total system cost and your Permission to Operate letter from your utility.
- Download Arizona Form 310 from azdor.gov, or use tax software that includes Arizona state filing (TurboTax, H&R Block, etc.).
- Complete Form 310:
- Part 1: Identify the type of solar device installed
- Line A: Enter the total cost of the solar energy device
- Line B: Calculate 25% of the cost (Line A × 0.25)
- Line C: Enter the lesser of Line B or $1,000
- Apply any carryforward: If you had unused credit from a prior year, add it here.
- Transfer to your AZ return: The credit from Form 310 reduces your Arizona income tax liability on Form 140.
Carry Forward Rules
If your Arizona state tax liability is less than $1,000, you can carry the unused portion forward for up to five subsequent tax years. For example, if you owe $700 in AZ state taxes this year, you claim $700 and carry the remaining $300 forward to next year.
Tip: Unlike the federal ITC, the Arizona credit cannot be carried back to prior years — only forward. Make sure to track your carryforward amount carefully and reapply it each year until fully used.
Stacking State and Federal Credits
The Arizona state credit and federal ITC are completely independent and can both be claimed in the same tax year. Here's how the combined savings look on a typical Arizona system:
| Item | Amount |
|---|---|
| 8 kW system gross cost | $17,040 |
| Federal ITC (30%) | − $5,112 |
| Arizona state credit (25%, capped at $1,000) | − $1,000 |
| AZ sales tax exemption (already applied) | $0 (no sales tax paid) |
| Net out-of-pocket cost | $10,928 |
Rental Properties and the State Credit
Arizona's state solar credit requires the system to be at a primary or secondary residence. Rental properties do not qualify for the residential credit. There is a separate commercial solar credit program for investment properties — consult a tax professional if you're considering solar on a rental.
Does Financing Affect the State Credit?
Like the federal ITC, the Arizona state credit only goes to system owners. If you purchase your system with cash or a solar loan, you claim the full credit. If you lease your system or have a PPA, the installer claims the credit — not you.
For more on how financing options affect your total savings, see our Arizona solar financing comparison guide. And for the full picture on federal incentives, review our federal ITC guide.
Common Questions
Can I claim the credit if I'm retired with low income?
Yes, as long as you have Arizona state tax liability. The credit carries forward up to five years, so even if you use it slowly, you'll eventually capture the full $1,000.
What if I install solar on a second home in Arizona?
Yes, secondary residences qualify. You can claim the credit for solar at a vacation home or second property in Arizona.
Does the credit apply to solar water heaters?
Yes — Arizona's solar credit covers solar water heating systems as well as solar electric (PV) systems.
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