Part 1: Going Solar

Should you buy or lease solar panels?

When we decided to do our part to help the environment, going solar was a no-brainer in Florida. The Sunshine State offers access to solar energy all year round.

There were also government incentives to consider when going solar, in particular, the Inflation Reduction Act which offers a 30% Federal tax credit. The 30% is not a direct discount on the purchase of a solar system but a dollar-for-dollar credit against one’s US Federal tax liability.

This means that if I purchase a $30,000 solar system in 2024, I can receive a $9,000 credit towards my federal taxes. If I only had a tax liability of $3,000 for the 2024 tax year, the unused $6,000 of the tax credit may be carried forward to offset future year’s taxes (currently through 2033).

I also discovered that you could have solar panels installed on your roof with no upfront cost. This is primarily possible through a solar lease. In this post, I briefly describe the advantages and disadvantages of buying versus leasing solar panels. If you are considering going solar, you are advised to do your research as depending on where you live, regulations and incentives may change. This post should however give you a good starting point.

When you buy solar panels, (whether paying upfront or through a loan) you are the owner of the panels. As the owner, you are fully entitled to any energy or tax credits associated with the investment of going solar. The panels become part of your home and may add value to your home. You are also responsible for maintaining the panels yourself. Your home insurance rates may increase to reflect the added value of your property. If you were to sell your home in the future, the solar panels form part of the home.

When you lease solar panels, you do not own them. As such you cannot avail yourself of any of the tax incentives associated with going solar. The tax benefits accrue to the lessor who owns the panels. However, in a lease, it is the lessor, not you, who is responsible for the upkeep of the panels throughout the lease period. The lessor is also responsible for carrying insurance on the panels. You only pay a fixed amount each month for the lease, which usually has a small annual adjustment for inflation. If you were to sell your home, the new owner would need to take over the lease of the panels. This could complicate the home sale.

The decision to lease or buy depends on one’s situation. A retiree with very little income tax to offset may find the lease more attractive. With a lease, you need not worry about how efficiently the panels are working as this is monitored and remedied by the leasing company. The monthly lease payment (even with the inflationary clause) may prove cheaper in the long run, especially if the cost of electricity increases at a higher rate. Leasing companies will let you know your monthly payments for the life of the lease, which could be twenty to thirty years. As an incentive to lease, the initial monthly payment offered is almost always the same or lower than your current electricity bill. Leasing companies may also offer to sell the system to the lessee at a discount after a certain number of lease years.

Someone with either an income windfall or regular income tax liability who can use the tax credits may find the purchase option more attractive. Also, most solar panel investments pay for themselves after 8 years so the future savings could be substantial. However, there are other costs involved in panel ownership such as insurance, maintenance, and any infrastructure upgrades that need to be done before going solar.

Our primary decision to go solar is motivated by our wanting to go green. However, the decision to buy or lease while secondary, did play into our decision. A pending high tax liability from the sale of a rental property nudged us toward the purchase option.

In future posts, I shall describe the process and experience of purchasing and installing solar panels.