Powering your home with solar energy may come with a hefty up-front cost, but there are many benefits that can make solar panels worth it. Not only do solar panels allow you to reduce your carbon footprint and save on energy costs in the long term, but they can also raise the value of a home and make it more appealing to future buyers.
This guide will take a closer look at how solar panel installation can increase your home’s market value, factors that influence your final listing price, and the effects on your property tax. Plus, we’ll share how you can score additional savings with solar tax credits and incentives.
How Can Solar Panels Increase My Home’s Value?
Home improvement projects like new roofing or plumbing can increase your property value, and solar panel installation is no different. The U.S. Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) conducted the largest-ever study of solar homes from 2002 to 2013 in eight states to determine how much the addition of solar panels impacts home buyers. It discovered that buyers in six of those states were willing to pay $15,000 more for homes with solar panels than comparable homes without them.
Additional studies have found that these home-value increases are directly tied to your electric bill and long-term energy savings. The National Renewable Energy Laboratory (NREL) shared details from a study published in The Appraisal Journal, the quarterly academic publication for the Appraisal Institute, the largest professional association of real estate appraisers in the United States. This 2008 study concluded that home value increases by $20 for every $1 reduction in yearly utility bills. So a solar energy system that saves a homeowner $500 per year can add a value of $10,000.
This added value allows sellers and real estate agents to increase the asking price for a home. Buyers benefit from an energy-efficient home, and sellers can profit from an increased resale value.
What Factors Influence the Property Value of a Solar Home?
Installing solar panels won’t always result in a higher market value for your home. Several external factors, including location, local electricity rates, and the value of the solar panel system, can affect home value. Here’s a closer look at the variables that can increase or decrease your property value.
The market value of a house with pre-installed solar panels changes depending on the home’s geographic location. Not every state has the defined laws, solar installers, or local support needed to make a solar investment profitable for a homeowner.
However, there are some areas where solar energy conversions are encouraged and readily available. The Solar Energy Industries Association (SEIA) named the following states as top solar markets based on their solar energy capacity (in order):
- North Carolina
- New Jersey
These locations support homeowners in their transition to solar energy with renewable energy laws and regulations that benefit their residents. They may also offer additional solar incentives and credits that help lower the cost of solar panels.
One benefit of solar energy is reducing your dependence on utility companies to provide power to your home. Homeowners can use solar panels to power their homes for less money, reducing their energy costs overall.
With a solar battery, residents can store any excess electricity that their solar panels generate throughout the day. This stored power can power your home overnight or during power outages. You can also use the energy when electricity rates are highest to help save more money.
These savings are most effective in states with high electricity rates, such as California, Colorado, Florida, New Jersey, and New York. For example, homeowners could sell their solar-powered homes in San Francisco or Orlando, Florida, or at a higher sale price than homeowners in Chicago because residents in these cities will benefit more from the cost savings of solar power.
Age of the Solar System
Another factor to consider is the age of the solar system. Solar systems usually last for 25 to 35 years, possibly 40 years if they’re in optimal condition. So homes with newer solar systems will provide more years of future use than a house with a system that’s 10 or more years old.
An inefficient system could negatively impact any expected savings on your energy bills. Without the proper coverage for equipment repairs or performance guarantees, you could be stuck paying additional costs for upgrades, replacement parts, or a completely new system. These older systems could also be close to or near the end of their warranty coverage.
If you’re considering buying a home with a solar system, be sure to get the full details on the system’s age and any repairs or upgrades that have taken place since its original installation. If you plan on selling your home with your solar system, it’s your responsibility to maintain the panels and the system before the sale.
Solar Panel Ownership
The legal owner of the solar panel system can affect the sale of a solar home. If a homeowner has purchased their solar panels outright, they have the option to include the panels in their home sale. This is the most straightforward transfer of ownership and the best low-cost, high-profit option for the seller.
However, the situation can get more complicated when trying to buy a home with a leased system. Since the seller is not the legal owner of the system, the buyers must decide how they want to take over ownership. Leased solar systems can be transferred to the buyer with a buyout or a transfer.
With a lease buyout, the seller can choose to pay off the remainder of their solar lease, and the buyer has the option to start a new lease under their name. However, the seller would have to pay the remaining lease payments at once, which can be a hefty sum, depending on the length and age of the contract.
The second option is to transfer the lease to a buyer willing to take it over. This is the most cost-effective option when dealing with a solar lease. With a lease transfer, the seller doesn’t have to invest as much of their money to complete the home sale. However, the new buyer has to meet the qualifications for a lease, including a credit check.
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How Do Solar Panels Affect My Property Tax?
Because the addition of a solar panel system increases your home value, the property taxes for your home will increase as well. However, many states have introduced laws to prevent homeowners from being penalized for their solar panel investments. These solar property tax exemption laws allow homeowners to claim an exemption for the additional property value without losing the added property value.
There are 36 states with a property tax exemption and 25 states with sales tax exemptions for residential solar owners. It’s important to note that the exemption percentage varies significantly from state to state. For example, while some states offer 100% exemption, others may stipulate a limited number of years for your exemption. Make sure you gain a complete understanding of your state’s policy to maximize your increased property value.
How Can Homeowners Save Money on a Solar System?
Installing a solar energy system requires a sizable initial investment for homeowners. According to the SEIA, the average cost of a 6 kilowatt (kW) solar system is $18,600. This total covers all of the components of a system, including the solar panels, installation costs, and accessories such as solar batteries or electric vehicle (EV) chargers. The price can vary based on the type of solar panels you buy, system add-ons, additional services, and pricing in your local area. However, homeowners can save on solar costs thanks to solar incentives, rebates, and tax credits.
Solar Tax Credits, Incentives, and Rebates
If you own your photovoltaic (PV) system, you can take advantage of the federal and state tax credits available for residential systems. The federal solar tax credit for 2022 is 30% of your total solar system costs. It will remain at 30% until the end of 2032. The credit lowers to 26% in 2033 and will reduce to 22% in 2034.
State tax credits can vary depending on each state’s laws. Additional rebates and credits may also be available from your utility company or city government. You can check the Database of State Incentives for Renewables & Efficiency (DSIRE) for the latest information about solar incentives for your area.
It’s important to note that only new solar customers can claim these incentives. The original owners can only claim these credits one time. If you buy a home with a preexisting system, you cannot apply for these credits.
Homeowners could also benefit from net metering programs, which allow you to accrue credits for selling the excess energy your solar system produces back to your utility company. Depending on the program, these credits can accumulate over the year and be paid off to the customer. The credits can also be used when customers need to pull power from the power grid on low sunlight days or during a blackout. These programs’ terms and credit rates vary by state and utility company.
With benefits like long-term energy savings, tax credits and incentives, and net metering programs, homeowners can expect investment in solar panels to add property value to their homes. So whether you want to make your home more valuable for yourself or potential buyers, a solar panel system upgrade could be worth it.
However, the value of adding solar panels can be influenced by your location, system health, and state and local policies. But paying attention to these will also help homeowners see a return on investment.
If you’re looking to install a new solar system in your home, use the tool below to begin your search for the best solar companies in your area.