Solar Tax Credit On Leased Solar Panels: Possible Options For You

February 1, 2024

Say farewell to rising energy expenses and reliance on fossil fuels. With solar energy, you can enjoy a radiant future that offers virtually limitless possibilities. While it’s crucial to acknowledge that everything comes with its costs, embracing solar power ensures a positive and sustainable path forward.

When considering solar adoption, there are two primary avenues to explore:

  1. The first option is to cover the full installation cost upfront and receive a solar power tax credit from the government.
  2. The second option is to lease solar panels for a designated period. That’ll allow you to forego the need for upfront savings, as payments are spread across each month over the next 10-15 years.

This article will show whether leasing solar panels can get a tax credit in 2024. Jumping ahead will be complex yet achievable. Continue reading to discover the optimal choice for your needs.

What Is the Solar Panels Tax Credit?

The Solar Investment Tax Credit (ITC) is a federal tax credit that incentivizes residential solar system usage. Speaking more generally, it’s a discount on going solar costs. Here’s how the solar tax credit works:

  1. You install a solar system on your property, paying for it with your money.
  2. You claim a solar tax credit on the system and installation cost. You can reduce your federal tax liability up to 30% of the amount spent on solar.
  3. You wait for a few months, and the credit applies to the system costs.

The solar tax credit is not a deduction or refund; it directly reduces your tax liability. Currently set at 30% of your solar system cost, the ITC will decrease to 26% in 2033 and 22% in 2034, as per the Inflation Reduction Act of 2022. The federal solar tax credit will expire in 2035 if Congress doesn’t renew it.

Solar Tax Credit On Leased Solar Panels: Possible Options For You

Source: SunPower

According to the Office of Energy Efficiency & Renewable Energy, the federal solar tax credit covers installation-related expenses, including associated labor costs. To get this incentive, ensure that you work with licensed installers. Remember, utilizing the assistance of an unlicensed institution may jeopardize warranties and eligibility for government incentives, including the federal solar tax credit.

Beware that roof repairs that don’t directly relate to the system can’t qualify for the tax credit. Prioritize fixing severe attic problems before panel installation, as attic renovations are often not considered part of solar expenses.

Properly fill out paperwork according to local laws, and seek assistance from your solar installer team to avoid losing compensation for installation.

Advantages of Solar Tax Credit

Solar Tax Credit On Leased Solar Panels: Possible Options For You

A solar tax credit offers various personal and environmental benefits:

  1. It reduces the cost of going solar, as a solar tax credit applies even to associated fees.
  2. The tax credit for solar panels lowers upfront financial barriers to entry, making solar energy more accessible.
  3. You’ll become less reliant on traditional utility companies by generating your electricity. It will lead to savings on your energy bills.
  4. Solar panels also increase your home value. Homes with solar panels generally sell for more than those without, making it a valuable advantage if you plan to sell.

The decision to go solar provides multiple environmental advantages, like reduced carbon footprint and lower reliance on non-renewable resources. By switching to solar energy, you’ll generate clean, renewable electricity and significantly lower your dependence on fossil fuels.

Can You Get a Solar Tax Credit for Leased Solar Panels?

Technically, it’s impossible to provide incentives with leased solar. You don’t own the panels until you pay off the lease and close the contract. You rent panels for 10+ years until you pay off the full price or close the deal in another way. It’s also impossible to get free panels from the government. So, you’ll still need to pay for panels in some way.

The ITC applies only to the system’s owner. So, the leasing company can claim the solar tax credit, not you. While missing out on the tax credit is the main downside to leased solar panels, there are still some benefits to consider, such as:

  • Lower upfront costs: You don’t need to provide a huge down payment, making it easier to access solar energy than purchasing a system outright.
  • Reduced maintenance responsibility: The leasing company manages and repairs the panels, saving you time and effort.
  • Predictable monthly payments: Solar panel leasing has fixed payments for the lease duration, allowing you to budget more easily.

Ultimately, deciding whether to lease or own solar panels depends on your circumstances and priorities. Solar system lease might be a good option if the upfront cost and maintenance are significant concerns. But purchasing a system is likely the better choice to maximize long-term savings and own your energy source.

Possible Loopholes To Get Leased Solar Panels Tax Credit

Solar Tax Credit On Leased Solar Panels: Possible Options For You

While getting the solar investment tax credit on panels bought on general lease programs is nearly unattainable, you can try some loopholes. Use them strategically and follow legal and financial regulations to maximize benefits from both local and federal authorities.

A Lease-Purchase Agreement

Remember that we are talking about your rights on leased property? That’s the first possible loophole. Enter a lease-purchase agreement where you acquire ownership after making a certain amount of payments. Once ownership transfers, you can claim the solar tax credit for the remaining payments.

Transforming a standard solar lease into a deferred ownership purchase, once the lease is fully paid and ownership is acquired, you can then claim the Investment Tax Credit (ITC) on the remaining system value. While you don’t initially own the system, eventual full ownership is attained, along with any potential value appreciation.

However, you should choose the proper solar leasing agreement. Check that it states ownership transfer upon full lease payment. Look for “lease-to-own” or “lease with purchase” options. Consult a tax advisor to determine when you become eligible for a leased solar panels tax credit.

Remember about the hidden costs. Solar panel lease agreements may have termination fees or additional charges. Evaluate the total cost carefully and compare it to other financing options. Consult a tax advisor and a lawyer to ensure you meet the eligibility requirements and obey the law.

Provider-Claimed ITC With Cost Reduction

This loophole is a marketing strategy used by some solar lease companies to attract customers. While it can offer cost savings, it’s not the same as directly claiming the ITC yourself.

Some solar providers can offer promotions where they install the system and claim the solar tax credit under their name. In this scenario, the provider installs the panels on your property and claims the 30% ITC under their company name.

Since they own the system, they can claim a tax credit. If the local government offers incentives to the installer, you may benefit from a lower installation cost, essentially turning the tax credit into a discount on your investment.

Thanks to the solar investment tax credit, the reduced installation cost can make those leased solar panels even more affordable. While you don’t directly claim the credit, it still eases the purchase benefit through the reduced cost.

Beware that this loophole might only be available in some areas or through all providers. Contact your local solar companies to find out whether they have an offer for you. Always prioritize choosing a reputable solar panel leasing provider over chasing the discount. We also recommend you consult a third-party tax professional and lawyer to understand the long-term implications of leasing solar panels in this way.

Is It Better To Lease or Purchase a Solar Energy System?

Solar Tax Credit On Leased Solar Panels: Possible Options For You

There is no perfect choice for everybody. While some prefer purchasing systems, others may find solar leases more beneficial. Each solar financing option has pros and cons, so the “better” choice depends on your needs and priorities.

Leasing offers lower upfront costs and simplified budgeting through fixed payments but may lead to higher overall expenses compared to purchasing, which allows greater flexibility in system modifications.

When you buy solar panels, you own them entirely but are responsible for maintenance costs. Leasing includes free or discounted manufacturing defect repairs. Purchasing allows eligibility for various government incentives but entails higher upfront costs and longer payback periods.

Do your research, compare quotes from different providers, consult a financial advisor and lawyer for personalized guidance and an individual solar tax credit calculator.

Andy Worford
Andy Worford

Andy is a Founder, Chief Content Officer, regular contributor, and idea generator behind Solar Power Systems. He is well-versed in various aspects of solar energy, including photovoltaic systems, solar policy trends, and green technology innovations.