Key Tax Implications of Leasing Solar Panels
- Ineligibility for the Solar Tax Credit: If you lease solar panels, you cannot claim the federal Residential Clean Energy Credit (also called the solar investment tax credit or ITC), which currently offers a 30% credit of the solar installation cost against your income taxes. This credit is only available to the system owner, and in a lease arrangement, the leasing company retains ownership and thus claims the tax credit, not the lessee/user.
- Credit Ownership by Lessors: Since the solar company owns the panels under a lease or power purchase agreement (PPA), they receive the tax benefits, including the federal solar tax credit. The lessee generally receives the benefit as lower monthly payments or reduced electricity costs, but does not directly benefit from tax incentives.
- No Local, State, or Federal Incentives for Lessees: Beyond the federal ITC, lessees usually do not qualify for other tax incentives, rebates, or deductions that are available to owners of solar energy systems.
- Impact on Property Taxes and Real Property Tax Exemption: For solar land leases, where property owners lease land for solar farm installations, the solar array is treated as real property and subject to property taxes unless exemptions apply. Some jurisdictions offer limited-time exemptions on the increased property value due to solar installations (e.g., New York’s 15-year real property tax exemption under RPTL Section 487), but after the exemption period, property taxes may increase.
- Considerations When Selling the Home: Because the lessee does not own the solar panels, if they sell their home during the lease term (which can last 7 to 20 years), the buyer must usually assume the lease payments. This situation can complicate the transfer of benefits and responsibilities, but it is not directly a tax issue.
Summary Table of Tax Implications: Buying vs. Leasing Solar Panels
| Aspect | Buying Solar Panels | Leasing Solar Panels |
|---|---|---|
| Ownership | Homeowner owns system | Leasing company owns system |
| Eligibility for Federal ITC | Yes, claim 30% of installation cost | No, tax credit claimed by leasing company |
| Eligibility for Other Incentives | Yes, eligible for local/state/federal credits | Generally no eligibility for incentives |
| Property Tax Impact | Possible increase, some exemptions available | Depends on lease and local laws; similar as landowner for leased solar farms |
| Selling Home | Panels owned by seller, can be included/sold with home | Buyer must assume lease payments or no transfer |
Conclusion
Leasing solar panels means you are not the owner and therefore cannot claim the significant federal solar tax credit or other related incentives, which are among the most valuable financial benefits of solar installation. These tax benefits instead go to the leasing company. While leasing may reduce upfront costs and monthly payments, it usually results in missing out on tax credits and potentially higher long-term costs compared to ownership or financing where you retain ownership and claim the tax credits yourself.
For maximum tax benefit, purchasing the system outright or financing through a loan that lets you retain ownership is generally advised.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/are-there-any-tax-implications-for-leasing-solar-panels/
