Should You Own or Lease Your Solar Panels?
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Pros and Cons of Owning versus Leasing
You’ve finally decided to get solar for your home. But one big question remains. Should you own your panels, the way you own your hot water tank or your refrigerator? Or should you lease them, like you might lease a car?
Whether you own or lease, you will reap the same environmental benefits of replacing your use of coal, oil or nuclear power with solar energy. You will also reduce your utility bills whether you lease or buy, since both options achieve the same objective: substituting utility-generated power with power from the sun. Neither leasing nor owning affects how much energy your panels deliver.
Purchasing your solar panels enables you to maximize the financial benefits of installing a solar system. That’s because the federal government and many state governments provide investment tax credits that reduce a taxpayer’s liability significantly.
Solar federal tax credit
A tax credit reduces the amount of income tax you owe dollar for dollar. Claiming a $1,000 federal tax credit cuts the federal income taxes you owe by $1,000.
When it comes to solar, you can claim 30% of the cost of a solar photovoltaic (PV) system as an investment tax credit (ITC) on your federal income taxes. If your system costs $30,000, you can receive a federal tax credit of $10,000. If you would normally pay $15,000 in federal income taxes, your tax bill would be reduced to only $6,000 with the application of the ITC. The system must be placed in service during the tax year you’re claiming the credit for; only homes in the U.S. are eligible.
The current federal tax credit expires December 31, 2019, after that the amount of the rebate will be reduced to 26 percent for 2020-2021 and then 22 percent for 2022-2023.
In addition to receiving a federal tax credit, you may be able to tap state tax credits. Plus, some utilities give their customers a rebate when they buy energy-efficient appliances, including solar panels. Check with your state energy office or your accountant to determine what additional state tax credits you might receive, and call your local utility to find out about rebates.
Return on Investment with Solar
Here’s another benefit: Owning solar panels increases the value of your home, which may make a difference when you decide to sell. A U.S. Department of Energy study conducted by the Lawrence Berkeley National Laboratory in California examined sales data for almost 23,000 homes in eight states from 2002 to 2013. About 4,000 of the homes had solar photovoltaic systems, all of them owned (as opposed to being financed through a lease with the solar company).
Researchers found that buyers were willing to pay $15,000 more for a home with the average-size solar photovoltaic system.
Finally, in addition to saving money on your electric bill, earning federal and state tax credits, and boosting the value of your home, you may be able to use Solar Renewable Energy Certificates to generate additional income from the energy you save thanks to your system.
Owning your solar panels and maintenance
If you don’t like the idea of having to maintain your system, owning might not be for you. When you purchase the panels, it is your responsibility to clean them and monitor them to make sure they’re working properly. If your system gets damaged in a storm or for some other reason doesn’t deliver as much energy as projected, it’s up to you to find the solution. Like with any appliance, if you buy your panels, you want to do so from a reliable company that provides a solid warranty. You may also want to take out a service contract to help with maintenance and repairs.
Leasing Solar Panels
Leasing your panels means that you don’t own them – the company you’re leasing them from does. Thus, the owning company enjoys any tax credits associated with your panels. But there’s an obvious benefit to this arrangement since you won’t need a large sum of cash or loan to go solar, instead you may not have to pay any money up front if you decide to lease.
Leasing also frees you from the responsibility of maintaining your system and if anything goes wrong, the company is responsible, not you.
On the other hand, solar leases usually run for 20 years. That means that, rather than pay a monthly utility bill, you’ll be paying for your lease month after month. Some companies increase their leasing fees year by year, which could increase your costs over time.
In addition, if you decide to sell your home, there is no guarantee that the new homeowners will want to assume the payments for your lease. If you have just bought your home and plan to be there for the life of your lease, this shouldn’t be a problem. But if you relocate frequently, you’ll want to be clear on whether or not you can cancel your lease if you move.