Going Solar – Key Financial Factors to Consider
There are dozens of good reasons for going solar in 2018. For example, you may feel strongly about becoming more self-sufficient, or reducing your carbon footprint. Yet one universal benefit of going solar this year is decidedly financial. So let’s look at how to determine the net financial benefit of going solar, over and above the other benefits the investment may bring you. First, we’ll explore the generous Federal solar tax credit, which provides for a tax deduction of 30% of the cost of buying a photovoltaic (PV) system through 2019. Next, we’ll explore the significant increase in your property’s value that an investment in a solar solution can bring about. Finally, we’ll outline three other key financial factors worth considering: Solar Renewable Energy Certificates (SRECs), the long-term value of your monthly energy bill savings, and homeowners insurance.
The Federal solar tax credit
The Federal tax credit, officially titled the Residential Renewable Energy Tax Credit (for residential property) and the Business Energy Investment Tax Credit (for commercial property) generally allows you to deduct 30% of the total cost of your purchased PV system from your Federal tax liability. In addition, any batteries integrated with your PV system are also eligible for the same credit.
Unaffected by 2018 Tax Bill
If you’re worried about the current Federal tax overhaul affecting this generous tax credit, don’t be. Despite the sweeping changes in Federal tax policy making headlines in recent months, the 30% Federal solar tax credit has remained unchanged.
The need to act soon
Through the end of 2019, the 30% solar tax credit will continue to provide a financial windfall for residential and commercial property owners that buy a qualified, new PV system. However, the credit will scale back to 26% in 2020, and 22% in 2021. From 2022 onward, the credit will expire for residential property owners, and drop to 10 percent for commercial property owners. Therefore, now is the perfect time to invest in a PV system to take advantage of the maximum credit. You can also install half of your system this year and the second half next year and claim the 30% credit in both years. An experienced installer can properly up-size the components so that no equipment replacement is necessary for your future expansion.
You may be concerned that you won’t be able to take full advantage of the solar tax credit because you expect your Federal tax burden to be too low to reap the full benefit. This is not a problem, because the IRS allows you to roll-over any remaining tax credit to the following years.
How to apply the deduction
To leverage the solar tax credit, either let your accountant know that you’ve bought a PV system, or let your favorite accounting software guide you through the steps. For details on calculating your residential tax credit ahead of time, have a look at IRS Form 5696. Your trusted local PV system installer may also be able to guide you in the right direction.
Increasing your property’s value
Understandably, many residential and commercial property owners want to know how much a PV system will increase their property’s value. Generally speaking, a new PV system will indeed raise your property value significantly, as long as you own your home’s solar solution and are not leasing it.
Owning vs leasing
There’s a dramatic difference between the financial benefits of buying versus leasing your solar solution. Buying your PV system will make your solar panels part of your property, and therefore part of your property’s value. Leasing your PV system, on the other hand, has little to no impact on your property’s value, as the solar panels and underlying system are not considered part of your property. A leased system may in fact make it harder to sell your home as the contract must be transferred to the new owner as well.
Official guidelines and findings
Assuming you own your PV system, the Federal Housing Administration (FHA) requires that appraisers include your system’s value in their appraisal of your property. Moreover, The Federal National Mortgage Association (FNMA), better known as Fannie Mae, has set guidelines for property appraisers to follow when calculating the value that a PV system adds to your property. Furthermore, the Federal Office of Energy Efficiency and Renewable Energy (EERE) performed an in-depth analysis confirming the value of PV systems:
The results impart confidence that PV consistently adds value across a variety of states, housing and PV markets, and home types.
Other key financial considerations
Solar Renewable Energy Certificates (SRECs)
If you live in a state that makes use of SRECs, such as Maryland or Pennsylvania, you can cash in on the energy produced by your solar generator. You will earn a certificate, known as an SREC, for every 1000 kWh-unit of solar energy you generate. You can then sell your SRECs, generally through a helpful intermediary such as SRECTrade, in the public energy marketplace. Unfortunately the value of SRECs is currently pretty low. Like any financial market, they can go up and down over time depending on supply and demand.
Return on investment
Let’s not forget that the primary financial benefit of buying a PV system is a lower monthly energy bill. Although all the financial factors above contribute to your return on investment (ROI), your monthly energy bill savings alone will generally pay for the full cost of your system within ten to twelve years in the mid-Atlantic area. After that time, the lower cost of your energy bills will effectively give your property “free electricity” each month, and savings in your pocket.
PV systems and home owners insurance
Most homeowners insurance policies do cover purchased solar solutions. Generally, insurance companies treat rooftop PV systems as permanent attachments and valuable improvements to the property, like decks. Although you may need to raise your coverage limit to encompass the greater value they add to your property, the other benefits above can more than offset the modest increase. However, it’s still important to guard against any losses that homeowners insurance would need to cover in the first place. From the outset, the best approach is to avoid fly-by-night installers and invest in a premium turnkey solar solution from a reputable, fully-qualified, highly experienced local installer, such as Mountain View Solar, with all the necessary licenses, NABCEP certifications and experience.
The financial side of going solar in 2018
Although there are a wide variety of reasons for going solar in 2018, the financial benefits are universal. As explored above, the current Federal solar tax credit allows you to deduct 30% of the cost of the PV system from your Federal taxes. Thankfully, this generous benefit has remained unaffected by the recent Federal tax overhaul. However, the full 30% tax credit is only effective through 2019, so now is the perfect time to invest in a PV system to leverage the maximum benefit. If your tax burden is too small to take full advantage of the tax credit this year, you can roll-over any remaining tax credit to future years. Simply have your accountant, or your favorite accounting software, walk you through the steps.
According to the FHA, Fannie Mae and EERE, adding a PV system to your property will likely increase your residential or commercial property’s value significantly, as long as you own your solar solution and are not leasing it. There are other key financial considerations as well. SRECs help you cash in on the solar energy your system generates. And the accumulated monthly savings in your energy bill will help your system pay for itself within far less than half of its expected lifetime. Finally, homeowners insurance generally does cover purchased PV systems, although it’s always best to install a premium system from a reputable local installer to minimize any risk of failure or losses.
Together, these key financial considerations all point to the power of PV systems as a wise investment in 2018. For a fast and free, zero pressure consultation, fill out our application form today!