Title tag: Arizona Commercial Solar Tax Credit Carryforward | KR Taxes
Meta description: Arizona's commercial solar tax credit expired in 2018 and its 5-year carryforward has closed. See the history, the rules, and what's still available now, including a time-sensitive federal ITC deadline.
If you're searching for Arizona's commercial solar tax credit in 2026, here's the fact you need first: it expired for new installations on December 31, 2018, and the last possible 5-year carryforward window, from a 2018 installation, closed out with 2023 tax returns. There is no remaining balance to carry forward on any current Arizona return. This guide covers how the credit worked while it was active, why it hasn't been renewed, and what Arizona business owners and real estate investors should use instead in 2026, including a federal deadline that lands July 4, 2026.
Key takeaways
- Arizona's commercial/industrial solar credit (A.R.S. §§ 43-1085 and 43-1164) was 10% of installed cost, capped at $25,000 per building and $50,000 per taxpayer per year, and only applied to installations from 2006 through December 31, 2018.
- The 5-year carryforward has fully expired: the last eligible installation year (2018) plus five carryforward years means the final usable year was 2023. Nothing remains to claim on a 2025 or 2026 return.
- The credit has not been renewed by the Arizona Legislature since it sunset.
- July 4, 2026 was the federal deadline for commercial solar projects to begin construction and preserve the standard four-year completion window under the Section 48E Clean Electricity Investment Credit. Projects that begin construction after July 4, 2026 face a hard December 31, 2027 placed-in-service deadline instead.
- Two Arizona incentives are still active and permanent: the property tax exemption on solar equipment value (A.R.S. § 42-11054) and 100% bonus depreciation under federal law for qualifying solar property.
- Claiming the expired state credit on a current return will be flagged and denied. Don't build a 2026 tax strategy around it.
What the Arizona commercial solar credit actually was
From tax years beginning after December 31, 2005 through December 31, 2018, A.R.S. § 43-1085 (and its corporate counterpart, § 43-1164) allowed a nonrefundable credit equal to 10% of the installed cost of a solar energy device used for a commercial, industrial, or other nonresidential application in Arizona. The credit was capped at $25,000 for any single building in a given year and $50,000 total per taxpayer per year. If the allowable credit exceeded a taxpayer's tax liability in the year of installation, the unused portion could be carried forward for up to five consecutive taxable years. The Arizona Department of Revenue's own credit page still describes the credit in this historical, informational sense.
That five-year window is the source of most of the confusion. The statute allowed a carryforward, but only for credits actually generated between 2006 and 2018. Someone who installed a qualifying system in December 2018 and had unused credit could carry it forward through the 2019, 2020, 2021, 2022, and 2023 tax years, five years total. By 2026, every possible carryforward year under this statute has already passed. There is no scenario in which a business currently has a usable balance from this credit.
Why the credit expired and hasn't come back
The statute itself contained the sunset date; it was never open-ended. The Arizona Legislature has not passed a replacement or extension in the years since. A 2018 Arizona Senate Research Staff brief on renewable energy tax incentives documents the credit's original design and its scheduled end date. If your accountant, a contractor's sales materials, or an older blog post is telling you this credit is still available for a 2025 or 2026 installation, that information is out of date by several years.
What's still available to Arizona businesses installing solar in 2026
The state income tax credit is gone, but it was never the only incentive in play. Three things still meaningfully reduce the cost of commercial solar in Arizona.
The federal Section 48E Investment Tax Credit, with a deadline that matters right now
The federal Clean Electricity Investment Credit under Section 48E applies to qualifying solar property placed in service after December 31, 2024. The statutory base rate is 6% of qualifying cost, rising to 30% for projects that satisfy prevailing wage and apprenticeship requirements or fall under a 1-megawatt exception, which covers most commercial and small-business installations. The One Big Beautiful Bill Act (OBBBA) accelerated this credit's phase-down for wind and solar specifically. Under IRS Notice 2025-42, a solar project that begins construction on or before on July 4, 2026, retains the standard rule allowing up to four years to be placed in service. A project that begins construction after today must instead be placed in service by December 31, 2027, a much tighter window. If you're actively evaluating a commercial solar installation, this construction-start distinction is the single most time-sensitive fact in this article.
100% bonus depreciation
Solar equipment used in a trade or business is depreciable property, and OBBBA made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. Combined with the federal ITC, this allows most of the after-credit cost basis of a commercial solar installation to be recovered immediately rather than over a multi-year depreciation schedule. Our Section 179 deductions guide explains how Section 179 and bonus depreciation interact for business equipment purchases generally, which is useful context even though solar property is typically depreciated under standard MACRS rules rather than Section 179 itself. Real estate investors adding solar to a rental property should also review it alongside a broader cost segregation study, since solar and other building components are often analyzed together when accelerating depreciation on an investment property.
Arizona's property tax exemption on solar equipment value
Unlike the expired income tax credit, A.R.S. § 42-11054 remains active with no sunset date. It provides that solar energy devices are considered to add no value to the property on which they're installed for property tax assessment purposes, and it applies to residential, commercial, and industrial property alike. A business that installs a $200,000 rooftop solar array on its facility does not see its property tax assessment increase because of that installation. This exemption is typically applied automatically through the county assessor's process, but it's worth confirming with your assessor's office after installation.
One caution on the transaction privilege tax (TPT) side: Arizona's TPT exemption for solar contracting (installation labor) sunset back in January 2017, a separate and earlier expiration from the income tax credit discussed above. A 2017 Arizona Department of Revenue ruling confirms that the solar-specific retail deduction under A.R.S. § 42-5061(M) remains valid, while the corresponding contracting deduction under A.R.S. § 42-5075(B)(13) only applied through December 31, 2016. Don't assume a solar installation contract is entirely TPT-exempt; confirm the specific treatment with your contractor and accountant before signing.
If you think you have unclaimed carryforward from an old installation
If you installed a qualifying system in 2016, 2017, or 2018 and never claimed the full credit, it's worth a careful look, but be realistic about the math. The five-year carryforward from even the latest possible year (2018) closed after the 2023 tax year. Amending a prior-year Arizona return to claim a credit you missed is generally subject to Arizona's own statute of limitations for refund claims, which is considerably shorter than five years back from today. This is a conversation to have with a tax professional who can review your specific installation date and filing history rather than something to assume is still open.
Conclusion
Arizona's commercial solar tax credit was a real, meaningful incentive for over a decade, and its structure, a straightforward 10% credit with a five-year carryforward, was generous by state standards. But it ran its course with the 2023 tax year, and no legislative action has revived it. For 2026, the incentives that actually move the numbers on a commercial solar project are federal: the Section 48E credit (with the July 4, 2026 construction-start deadline directly affecting your timeline), permanent 100% bonus depreciation, and Arizona's ongoing property tax exemption. A major equipment purchase like this is exactly the kind of decision that belongs in a year-round tax planning conversation rather than something you evaluate for the first time at filing season.
Evaluating a commercial solar installation and want to know what actually applies to your business in 2026? K&R's Strategic Tax Advisory and Preparation team can model the federal ITC and depreciation benefits against your specific timeline and entity structure before you sign a contract. Contact K&R to talk through your project.
Frequently asked questions
Can I still claim Arizona's commercial solar tax credit in 2026? No. The credit was only available for installations from 2006 through December 31, 2018, and its five-year carryforward window closed after the 2023 tax year. There is no version of this credit currently claimable on an Arizona return.
Is there any chance Arizona brings this credit back? It's possible the Legislature could pass a new renewable energy credit in the future, but as of this writing there is no pending legislation reviving A.R.S. §§ 43-1085 or 43-1164. Any future credit would likely be a new statute with its own rules, not a reopening of the old one.
What's the most valuable incentive for commercial solar in Arizona right now? For most businesses, the federal Section 48E Investment Tax Credit combined with 100% bonus depreciation delivers far more value than the old state credit ever did, especially for larger installations, since the state credit was capped at $50,000 per taxpayer per year regardless of project size.
Does the July 4, 2026 deadline affect solar projects that are already under construction? If physical work of a significant nature began on or before July 4, 2026, the project should already satisfy the beginning-of-construction requirement and retain the standard four-year placed-in-service window. Projects that haven't yet started construction and begin after July 4, 2026 face the stricter December 31, 2027 placed-in-service deadline instead. Document your construction start date carefully either way.
Does the Arizona property tax exemption require an application? In most counties it's applied automatically when the county assessor processes the building permit for the installation, but errors happen. Confirm with your county assessor's office after installation that the added value from your solar equipment was excluded from your assessment.
Can I combine the federal ITC with bonus depreciation on the same project? Yes. These are separate federal provisions that apply to the same property: the ITC reduces your tax liability directly, and bonus depreciation is calculated on the remaining depreciable basis after the credit is applied. A tax advisor can model the combined effect for your specific project cost and timeline.
Internal links used: Strategic Tax Advisory and Preparation (services), Section 179 Deductions, Cost Segregation Studies for Rental Real Estate, The Best Time for Tax Planning: Today, Contact Us. All verified live via direct fetch or live search this session, July 4, 2026.
External gov/academic sources used (9): A.R.S. § 43-1085 (azleg.gov); A.R.S. § 43-1164 (Justia, secondary statute repository); Arizona Department of Revenue credit page; A.R.S. § 42-11054 (azleg.gov); Arizona Senate Research Staff brief on renewable energy tax incentives (azleg.gov); IRS Notice 2025-42 (Sections 45Y/48E beginning of construction); IRS Clean Electricity Investment Credit page; IRS 2026 inflation adjustments newsroom release (bonus depreciation); Arizona Department of Revenue TPT ruling on solar equipment. All verified live via search/fetch, July 4, 2026.
