Installing solar panels on rental properties has become a growing trend as property owners seek ways to save on energy costs and attract eco-conscious tenants. But what many rental property owners don’t realize is that they may be eligible for solar credits, even for properties they lease out. In this blog, we will dive into how solar credits work for rental properties, the pros and cons of installing solar energy systems on leased homes, and how property owners can benefit from government incentives.
What Is a Solar Credit?
Solar credits, often referred to as the Investment Tax Credit (ITC), allow property owners to reduce the total cost of installing solar panels by claiming a percentage of the installation cost as a tax credit. As of now, the ITC offers a 26% tax credit for solar systems installed through 2022, with plans to step down to 22% in 2023.
For example, if the total cost of installing Big Solar Panels on a rental property is $20,000, the property owner can claim $5,200 as a credit on their federal taxes, reducing the amount of taxes owed.
Can You Claim Solar Credits on a Rental Property?
Yes, you can claim solar credits on a rental property, but there are a few stipulations. If you are the owner of the rental property and pay for the installation of the solar panels, you are generally eligible for the ITC. However, the tax credit can only be claimed if the rental property is actively generating income. If the property is vacant or not in use, you may not qualify for the credit.
Another key point to consider is that solar panels installed on rental properties used exclusively for personal use or partially for personal use will not be fully eligible for the tax credit. For mixed-use properties, only the portion of the property used for rental purposes will qualify for the credit.
How Solar Panels Increase Property Value
Investing in solar services for rental properties does more than just provide tax benefits. It can significantly increase the overall property value. According to various studies, homes with solar panels sell faster and for higher prices than those without. For rental properties, this means you can charge higher rent due to the energy savings and eco-friendly appeal, making your property more desirable.
Energy Savings for Tenants and Owners
Installing solar panels on a rental property doesn’t just benefit the owner; it also offers savings for tenants. Since solar panels help reduce electricity bills, tenants living in solar-powered rental homes will experience lower energy costs. This can serve as an attractive feature, allowing landlords to maintain or raise rent while still offering tenants a cost-effective place to live.
By providing energy-efficient solutions like solar panels, landlords can improve tenant satisfaction, lower vacancy rates, and increase long-term rental income.
Challenges of Installing Solar Panels on Rental Properties
While there are clear benefits to installing solar panels on a rental property, there are also a few challenges that rental property owners need to consider.
- Upfront Costs: Although solar credits help reduce the cost, the initial investment for solar panels can still be substantial, especially for landlords who own multiple properties.
- Tenant Cooperation: Some tenants may not be willing to accommodate solar installation or might be concerned about how it could affect their living space.
- Shared Savings: Tenants typically benefit from reduced utility bills, but landlords may not directly see these savings. This means the owner must focus on the long-term value increase of the property rather than immediate returns.
Personal Experience With Solar on a Rental Property
When I first considered installing Big Solar Panels on my rental property, I was hesitant because of the upfront cost and the complexity of managing the installation while having tenants on the property. However, after doing some research and consulting with a solar installation company, I found that the potential savings and the increase in property value far outweighed the initial investment.
After going through with the installation, my tenants were thrilled with the lower electricity bills, and I was able to raise the rent slightly due to the eco-friendly nature of the property. Plus, the 26% tax credit made the overall installation cost much more affordable.
Government Incentives for Solar Panels on Rental Properties
Aside from the federal ITC, several state and local programs can help rental property owners offset the costs of installing solar energy systems. These include:
- State tax credits: Some states offer additional tax incentives on top of the federal ITC.
- Solar rebates: Local utilities and governments may provide rebates to lower installation costs.
- Performance-based incentives: Some states reward property owners for generating solar energy by providing payments for each kilowatt-hour produced.
By taking advantage of these incentives, rental property owners can further reduce the cost of installing solar panels and maximize their return on investment.
Offsetting Utility Costs with Solar Power
Another significant advantage of solar panels on rental properties is the potential to offset utility costs. While tenants usually benefit from reduced energy bills, landlords can also negotiate lease terms that account for the installation of solar power. For example, landlords may offer an all-inclusive rent package that includes utilities while still making a profit from the solar power system’s reduced costs.
Solar Panels for Mobile Homes and RV Properties
Many landlords overlook the benefits of installing solar panels on mobile homes or properties with recreational vehicles (RVs). Solar panels can be particularly useful in these scenarios, as tenants of mobile homes or RV parks are often looking for ways to lower their energy expenses.
Additionally, mobile homes and RV parks are frequently located in remote areas where traditional electricity services may be expensive or unreliable. Installing solar systems on these properties provides tenants with reliable energy while reducing the property owner’s dependence on utility companies.
Choosing the Right Solar System for Rental Properties
When considering solar installation for a rental property, it’s essential to choose the right system for your needs. Here are a few factors to consider:
- Size of the solar array: Larger rental properties may require bigger systems, such as a 7 kW Solar System, to meet energy demands.
- Energy storage: Installing a solar battery system can help provide continuous energy even when the sun isn’t shining, especially for rental properties in remote locations.
- Durability: Make sure the system you choose includes durable components that can handle the wear and tear of being installed on a rental property.
Maintenance and Management of Solar Panels
Once solar panels are installed, maintenance is relatively minimal, but it’s important to ensure they are regularly cleaned and inspected for optimal performance. For rental property owners, hiring a professional company to handle the upkeep of the system is often a good idea.
For example, while tenants may notice dirt or debris blocking the panels, it’s typically up to the landlord to coordinate with a solar service provider for cleaning and maintenance. Depending on your location and the climate, you might need to clean the panels every few months.
Understanding Solar Warranties
When you install solar panels on a rental property, you’ll want to understand the warranty options available. Many solar panels come with 20 to 25-year warranties, but it’s essential to read the fine print. Ensure that the system’s components, such as the inverter and solar heater, are covered.
FAQs
- Can I claim solar credits for a rental property?
Yes, you can claim solar credits on a rental property as long as it generates income and meets other eligibility requirements. - Will solar panels increase the value of my rental property?
Yes, installing solar panels can increase the property’s value and make it more attractive to tenants. - Do tenants benefit from solar panels on a rental property?
Yes, tenants will typically see lower electricity bills, making it more affordable for them to live in your rental property. - What are the challenges of installing solar on rental properties?
Some challenges include upfront costs, tenant cooperation, and not directly benefiting from reduced utility bills. - Can I install solar panels on mobile homes?
Yes, solar panels can be installed on mobile homes, and they offer significant energy savings for tenants in remote areas.
Summary
In conclusion, solar credits for rental properties offer a fantastic opportunity for property owners to save money, increase property value, and attract eco-conscious tenants. With the right approach, solar energy can be a worthwhile investment for rental property owners.
For expert guidance on maximizing solar credits for your rental property, don’t hesitate and get a quote. We’re here to help you make the best choice for your investment.
