solar panels on a house
Going Green, Home Improvement

Adding Solar Panels to Your Home Can Bring a 26% Tax Credit

So you’re considering adding solar panels to your home, but aren’t completely sold. What if we told you in addition to being eco-friendly, you could also receive a 26% tax credit for doing so?

As much as we’d love it, most home improvement projects don’t provide any tax benefits. They, of course, can increase your home’s value and your overall satisfaction with your home. But thanks to the IRS, there is one home improvement project that can not only improve the value of your home, but also provide a 26% tax credit! The IRS provides a federal tax credit of up to 26% for homeowners that install solar panels. And more homeowners say they’re actually considering purchasing solar panels. But before you rush to claim that tax credit, here are five things you need to know about solar panels.

Will the panels be leased or owned?

The value in the panels is if they transfer to the new owner. Not all solar panels that are installed are actually owned by the homeowner. It is important to ask (and get in writing) who specifically owns the panels after installation. If the panels are leased, buyers should be aware of any lease takeover requirements and fees. In 2014, 72% of homeowners leased rather than purchased solar panels. In most cases, to enjoy the tax incentives, as well as utility savings, the panels must be owned- rather than leased.

solar panels on a house

The Upfront Costs Aren’t Cheap

While homeowners can enjoy a reduced electric bill by 70%-100% with solar panels, it does not come without a cost. The upfront price of a solar panel system ranges based on location and size; however, most average between $15,000-$40,000. The staggering price tag is part of the rationale behind the federal tax credit- to incentivize homeowners to install energy efficient solar panels. This is also a dominant factor in why many homeowners opt to lease rather than purchase.

Your State May Also Provide Additional Credits

In additional to the federal tax credit, many states are also encouraging homeowners to install solar panels by providing more nominal tax credits or rebates. While most of the state level credits aren’t anywhere near the 26% federal credit, the good news is that they can be combined on top of the federal credit! Prior to purchasing a system, it’s important to note how much your state is providing to be able to adequately budget.

solar panels home

How Much Will You Save?

If a homeowner is going to shell out $15,000-$40,000 they want it to be worth it. Homeowners want to know they’ll see significant savings annually. According to a study by Sense, a company that produces home-energy monitoring devices, most homeowners save on average $1,075 each year. Depending on which state you live in, homeowners could see a $38,000-$90,000 savings over 20 years!

Read The Fine Print

As with anything, there is fine print that you should read before purchasing solar panels. For example, the federal tax credit is set to expire in 2021, and will reduce to 22% savings next year. Once the federal tax credit expires, homeowners will receive no compensation for their significant investment. In addition, not all properties qualify for the state or local credits and rebates. The tax credits are available to primary residences which means investment properties are most likely not eligible for the tax credit. Whichever solar panel contractor you use, it’s important you thoroughly read the written contract prior to beginning the process.

According to the Solar Energy Industries Association, the U.S. is expected to have 3 million residential and commercial solar panels. The interest and demand is growing, and with the clock ticking on the significant federal tax credit, now could be an ideal time to capitalize on the energy savings.

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Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She's passionate about the power of real estate. She's also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

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