Have You “Gone Solar” Yet?
By Judy McNary Boulder, CO
Solar systems for residential use have been available since the late 1970s but did not become popular until the 1990s. Today, the average cost is much less than it was in 2004 and generous tax incentives make it even more affordable. Four questions can help determine whether installing a solar system is right for you.
First, consider how long you will live in your current home. If you plan to move in less than four years, you may not fully recover the cost of the solar system. However, if you do plan to be in your home for more than four years, an installed system you own benefits you in two ways. The first is obvious: the dramatic reduction in energy bills. The second is the increase in your property value. A study done by the real estate site Zillow in 2019, comparing houses with and without solar, found that solar systems add, on average, 4.1% to a home’s sales price. That means a solar system could add $10,250 value to a $250,000 home.1
Second, look at the roof on your home. Certain types of roofing material, such as Spanish tile or cedar shake, don’t work well for solar. Best are composite shingle or metal roofs. Assess the condition of your roof, as well. If your roof is nearing the end of its life you may want to replace it before installing solar panels.
Third, assess the orientation and pitch of your roof. Ideal roofs for solar panels are unobstructed, south-facing, angled between 30 and 45 degrees. Most homes have solar panels spread across multiple roofs; and if there are no obstructions to the sun, a combination of south, east and west roofs should serve you well (in the Northern Hemisphere!). You can use Google’s Project Sunroof, using your address and average monthly electric bill, to estimate your solar potential and savings over 20 years.
Lastly, decide whether you can afford to install a system. The good news here is that you probably can! The typical cost for residential solar systems today is between $15,000 and $30,000, but federal tax credits and potential state and local energy incentives greatly reduce this out-of-pocket price tag. The greatest savings come from the federal solar tax credit. For 2020, this credit for an installed solar system is 26% of the cost of the system. The tax credit is reduced to 22% for 2021 and expires for 2022. Note that the system must be owned by you, rather than leased, and it must be installed by year-end.
As solar system use has gone mainstream, financing has become easier and more affordable. It’s easiest to pay cash, but you can use a Home Equity Line of Credit (HELOC) or a solar loan. For the interest to be tax deductible, the loan must be secured by your home so the HELOC might be the wiser choice. Another option is to install your solar system a few panels at a time. When installed at one time, the systems often use a central inverter. This means all the solar panels feed the energy into a central inverter to convert DC to AC power. If you can afford only a few panels to get started, install panels that each have their own micro-inverters and you’ll be offsetting your energy bills right away. You can add more panels over time as your budget allows.
One last but important point on the federal investment tax credit to note is that it is not a refundable credit. You need to apply the credit against your total tax bill; excess credit is not refundable. This creates tremendous tax planning opportunities for you to discuss your solar plans with your financial advisor. It may be the perfect time to consider partial Roth conversions, realization of capital gains, or tax-saving moves that ensure you maximize your solar credit benefit. The website www.letsgosolar.com is a wonderful resource, explaining how solar systems work, how to estimate the size and cost of system needed, and how to determine the best way to finance and make use of rebates and incentives. As with all major purchases, get several estimates before signing a contract.
Once you’ve got solar installed, smile and watch your meter go backwards as the sun shines. Your next step is an electric vehicle. There are rich federal and state tax incentives that make these surprisingly affordable to purchase as well. You’ll be using the sun to energize your home and your car!
1. https://www.consumerreports.org/solar-panels/ how-to-get-a-solar-tax-credit/
This content was developed by the Alliance of Comprehensive Planners and should not be reproduced without permission.