If you’re a homeowner who’s ever done a major home renovation, you’ll know that certain upgrades will mean an increase in property taxes. When you do a home renovation, in most municipalities this will involve getting permits for things like electrical, plumbing, or construction work.
When property tax assessment time rolls around, the assessor’s office will typically review any permits for the property. If it looks like significant renovation work was done, your taxes could go up.
And sometimes, assessors simply drive around looking for visible exterior upgrades. If a home suddenly has a big deck that wasn’t there in the last assessment cycle, an assessor can catch that - even if you didn’t take the step of getting proper permits for the work.
Like any home renovation, adding solar panels can increase your property taxes. Solar panels carry a significant price tag, costing tens of thousands of dollars before tax credits and rebates. This can mean a significant increase in your property taxes. However, unlike most home upgrades, there are many states and cities that offer property tax exemptions for solar panels.
Adding solar panels to your home involves permits. There will at least be a permit for the electrical work, approvals that are required from your utility, and often a structural or engineering permit before you can add panels to your roof. If you’re getting a ground-mounted system, you will probably need a geotechnical permit to ensure that the soil in your yard can support the significant weight of solar panels and its mounting system.
Plus, solar panels are a visible addition to your home. Because of all this, there’s no hiding your solar panels from the taxman.
Many states, especially those with renewable energy targets, use property tax exemptions as one tool to encourage the development of solar energy.
The way these work is pretty simple. In states and muncipalities that have a property tax exemption for solar energy, the addition of a solar energy system to your home doesn’t increase the assessed value of your home. As a result, your property taxes don’t go up. Great!
Depending on where you live, the property tax exemption may cover only solar photovoltaics, or it may include solar thermal and other renewable energy technologies, such as geothermal heat pumps, wind turbines, and biofuels such as wood pellet stoves and bio-digesters.
You’ll need to check with your local property tax office to find out exactly which technologies qualify.
According to Tax-rates.org, property taxes in the United States range from a high of 1.89% in New Jersey to as low as 0.18% in Louisiana.
Let’s say that you live in New Jersey, which has the highest taxes listed at 1.89%. The average cost-per-watt of residential solar panels in New Jersey is $3.30 per watt installed. That means a pretty typical 6 kW system will cost $20,000.
If you were paying property taxes on that additional value, that would mean your annual property taxes would go up by $378.
That’s a lot, but now consider that photovoltaic systems last a really long time. Most solar panels include at least a 10 year manufacturer’s warranty and a 25 year power warranty.
This means, over 25 years, you could pay an additional $9,450 in property taxes. That’s a lot of money! And it could even be higher than that, because many counties and cities add their own property taxes on top of that.
Thankfully, New Jersey has a property tax exemption, saving you from having to shell out $9,450 over the life of your system.
To help you understand what these taxes might look like over the life of your photovoltaic system, the table below lists how much in total taxes you might expect to pay over the life of a typical $20,000 system. The numbers are the total taxes paid by the year listed. Remember that the value of the system is the gross cost, and not the net cost after incentives.
For example, Year 15 lists the total taxes you will have paid after 15 years of owning your system.
Property taxes range from a high of 1.89% in New Jersey to as low as 0.18% in Louisiana, but keep in mind that rates also vary by counties and local governments.
Total property taxes paid for a $20,000 system
|1.89% (New Jersey)||1% (about average)||0.18% (Louisiana)|
As you can see, while the average cost every year isn’t too bad, these taxes can really add up over time.
Property tax exemptions are incentives that start with state governments, but some states only make them possible, and give local cities the option to opt-out of them. That means if your state has a “local option” on the exemption, it’s up to your local municipality to actually make it available.
This means that you always need to check with your local property tax office to find out if a solar exemption is offered.
Currently, 32 states have passed some form of property tax exemption:
If your state isn’t listed, you should check with your local property tax assessor’s office. Some local governments may enact local incentives in an effort to support renewable energy.
In many cases, you must apply for a property tax exemption with your local tax office. The form is usually very brief, often only one page. For example, this is the property tax exemption form for Los Angeles county.