We can reduce our electricity bill by about $120 a month by installing solar panels on our home. The problem is that we would need to take out a home equity line of credit to pay for them. If we use the $120 a month to pay it off, we would pay off the loan in about 10 years. The warranty on the solar panels is 35 years. Given that electricity costs will only go up, is this a wise investment?
You’ll have to judge for yourself. From what you’ve told us, there’s a fairly steep opportunity cost on your cash: You’ll have no savings on your investment for the next 10 years.
We wonder if you’ll incur any costs associated with the solar panels during that time that are not covered by warranty. If you expect any, you need to factor those expenses into your computations.
On the other side of the ledger, you may qualify for rebates or tax incentives on the installation of the panels. If so, you might find that the payback period is much shorter than the 10 years you describe in your question.
According to the IRS.gov Web site, the Residential Energy Efficient Property Credit will give individual taxpayers a credit of 30 percent to help pay for qualified residential alternative energy equipment. Solar electricity equipment is included in this tax credit. If you have qualified costs of $10,000, you should expect to see a reduction in the federal income taxes you owe of $3,000. And if you don’t owe any taxes, you should expect your tax refund to increase by $3,000.
You could use that tax break to reduce the amount you are borrowing or pay down the debt and shorten the time it takes you to start getting the benefit of the investment. You also need to find out if your local utility company has any incentives or rebates available to you. Your state may have some as well.
Keep in mind that the IRS tax credit runs through 2016. With these tax credits, and shopping around with various lenders for the best terms on an equity line of credit, you might be able to reduce your costs further.
As you ponder how to proceed, you also want to be quite certain you’ll stay in this house for some time to come. While the investment in the solar panels might be great for you in the long term, if you have to resell the home, will a buyer consider the solar investment something that adds value to the home? Some buyers may see the value, while others may not. We wouldn’t want you to invest in the solar panels only to find out that you’ll have to move soon after the installation.
If lots of homes in your area have solar panels, and buyers are learning to expect them, adding them might give you something extra to promote your home when it comes time to sell. However, if few homes have solar panels and buyers tend not to pay for the investment, you might not get back the money you put into the panels.
For more details, check out Form 5695, Residential Energy Credits. The form is available at IRS.gov or by calling (800) TAX-FORM (800-829-3676).
Ilyce R. Glink’s latest book is “Buy, Close, Move In!” If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 a.m. to 1 p.m. EST. Contact Ilyce through her Web site, www.thinkglink.com.