Episode 077

IS AN INVESTMENT IN SOLAR PANELS WORTH IT?

Is Solar Right for You?

It’s no shock that plenty of renewable sources, like solar technology, have spiked interest amongst many individuals. The idea of going solar has become increasingly popular for two main reasons. Of course, one of the main benefits is that it allows the opportunity for people to no longer worry about the increasing price of electricity. In essence, shielding yourself from a stubborn utility bill. But it’s not always about money. Perhaps it’s to lower one’s own carbon footprint. After all, being environmentally conscious has also gained popularity these past few years. But, regardless of your reasons for going solar, let’s look at whether the decision makes sense from a financial standpoint.

Options for Solar
One option you have to acquire solar panels is to simply buy them outright. It’s easy to think of this as if someone were purchasing a vehicle. If one has the cash on hand, there is no need to worry about financing leases. However, another option that exists it to lease them. With a scheduled payment, usually lasting around 15-20 years, a homeowner gets the system installed by a developer. While this option is liked because it isn’t as expensive as buying outright, the panels themselves are still owned by the developer and not the homeowner. A buyer should always pay close attention to the leasing agreement. Since maintenance costs are likely to be covered by the developer, the buyer may find the opposite is true for damages or replacements. Another option is called a solar power purchase agreement (PPA). Under this kind of agreement the solar financing company buys and maintains the solar electric system and the homeowner purchases the energy generated by the system on a per kilowatt hour basis. One thing to familiarize yourself with is your current per kilowatt hour payments. Since the goal is to reduce spending, it’s crucial to obtain projected savings. This is something your solar provider can help illustrate. If you choose the financing option, it’s also possible to obtain a solar loan, which can be done via many different financing methods, such as obtaining a home equity loan or line of credit, using a solar financing company, a personal loan, or a 401k loan. To understand how these options affect you be sure to discuss with a financial planner who can help you ensure you get the best bang for your buck.

Tax Incentives
Yes, solar incentives exist! If you are going to own or finance your system on your primary residence you may be eligible for federal and state tax incentives. Unless extended by Congress, the federal tax credit is set to expire in 2024. As of July 2021, there is a 26% federal tax credit,  meaning 26% of your qualified expenses will be given back to you as a credit on your tax return. By the way, this tax credit is set to decrease to 22% in 2023. Of course, state tax incentives will vary. But, an important thing to note is these tax incentives are used to offset tax liabilities. The credit is used to decrease the amount an individual owes in taxes, and while it cannot put money directly in your pocket beyond bringing your tax liability to zero, any remaining credit amount may be passed into future tax years.

Important Questions to Consider
Will I save the cash amount worth considering the option to go solar?
How should I go about purchasing solar panels?
Will I be responsible for insurance, maintenance or damages through my choice of purchase?
Will I have to worry about any interest rates or a down payment?
If I plan on selling my home must the panels be paid in-full beforehand? Can I easily transfer ownership to the new homeowner?
What are the tax incentives like in my state?

CERTIFIED FINANCIAL PLANNER™ PROFESSIONAL

Before you decide to sign any contract or other documentation for solar panels, there are several factors you need to be aware of and fully understand.  I highly recommend speaking with an attorney, since the documents will likely be legally binding. Consider speaking with a CPA, Enrolled Agent or tax professional to understand any credits that you may qualify for. You should also consider hiring a Certified Financial Planner™ Professional, since they can apply their skills and experience to your situation in order to help you make an informed decision.

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