All Forum Posts by: Steve K.

Disclaimer: I'm not a tax professional and this is not official tax advice. Anyone considering claiming the federal investment tax credit (ITC) for solar should consult with a certified tax accountant/CPA. With that said, I have claimed the solar ITC myself on my personal homes and also I have been working in the solar industry in various roles for about 15 years. The ITC is a 30 percent tax credit for solar systems on residential (under Section 25D) and commercial (under Section 48) properties. My understanding is that the ITC applies to primary and vacation homes/secondary residences but not rental properties. I have had solar customers claim the ITC on second homes and vacation homes without any issues. However I have also had customers ask their CPA's if their rental properties would qualify. In every case the CPA said no, the ITC only applies to primary homes or vacation homes, not rentals. There is language in the tax code stating you have to live in the home for part of the year to claim the ITC for the solar electric system that serves that property. Owned or financed systems qualify for the tax credit. If you lease a system, the 3rd party owner (leasing company) gets the tax credit. I have worked with investors who own large portfolios of resi rentals and the best solution for them has been to lease the systems or use a power purchase agreement (PPA), so that a 3rd party can claim the ITC and pass those savings on to the owner, since they can't take the tax credit on rental property themselves. I have solar on my personal residence but not my rentals. I would like to put solar on my rentals but seeing as the tenants pay the electric bills and those properties don't qualify for the tax credit, I haven't done it yet (although I may sometime anyway, after all other critical Cap Ex projects are completed). Several of my properties are in areas where leasing isn't an option so that solution doesn't work for me like it did for my above mentioned customers. 

This is from the DOE website https://www.energy.gov/savings/residential-renewab...: 

"A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer."

This is from the IRS website, instructions for filling out form 5695. (https://www.irs.gov/pub/irs-pdf/i5695.pdf):

"You may be able to take the credits if you made energy saving improvements to your home located in the United States...  ...A home is where you lived in 2017 and can include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home... ...Your main home is generally the home where you live most of the time. A temporary absence due to special circumstances, such as illness, education, business, military service, or vacation, won't change your main home."

If you own commercial properties as a business you may be able to claim the ITC under section 48, but it would be important to ensure that the properties are zoned commercial and have commercial meters (not residential) and in this case the tax credit would apply to the businesses taxes not your personal taxes. 

Here is the step down schedule of the ITC:

30% for systems placed into service before 12/31/2019

26% 12/31/19-1/1/21

22% 12/31/20-1/1/22

0% after 1/1/22

more info: https://www.seia.org/initiatives/solar-investment-...

https://news.energysage.com/how-do-i-claim-the-sol...

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

@Jeremiah Dye What are you going to wear?! This thread has gotten so much attention, the people need to know!  

I’ve operated in both blue collar and white collar working environments. What I have learned is to try and dress like the people I’m doing business with. People trust people who look like they do. However dressing like a banker might not work for you, it might feel forced and end up making you look and feel awkward if you’re not accustomed to it and your suit isn’t tailored etc. So just dress up enough to look put together while still being comfortable but don’t overdo it would be my advice. Probably not your work uniform or people might think you’re there to fix something instead of applying for a loan. I was surprised at my first closing on a multi family, the seller who I knew held a portfolio of dozens of paid off properties showed up in a sweat stained grey V-neck T-shirt and cut off jean shorts. When you get to that level you can wear whatever you want, even jorts, apparently.

@Russell Brazil also thanks for lobbying to prevent HOA's from blocking solar. Historically there have been many more HOA policies, utility policies, and PUC determinations that have prohibited people from going solar than there have been policies supporting it. I'm not sure the CA mandate is something I can get behind even as a solar advocate, but it does signify the winds are changing in terms of solar policy.

@Russell Brazil there actually are hard numbers we can use instead of relying on the personal experience of a handful of realtors. The appraisal institute study used sales data from 20,000 homes including homes in Maryland and determined solar homes sell at a $15k premium, so that is what most people go by. I believe you that there are realtors out there who have been unable to sell solar homes at a premium, but sales data suggests the majority of realtors are selling solar homes for a premium. Personally I know one realtor who refuses to list homes with leased solar because of one bad experience she had (and I agree with you that leased solar can cause transactional problems). However I also know many other realtors who have had great success leveraging the selling points of solar. They have been able to achieve higher sales prices because of their understanding of how solar is an asset and their ability to manage the sale in such a way to achieve a higher sales price. The second category is the larger category in my experience and according to national sales data. 

@BJ Dante I actually agree with you more or less about the mandate, I think it was unnecessary seeing as most CA new homes already come with solar anyway, and the mandate may have negative repercussions in other markets. But a lot of points being made on here saying it’s not cost effective or people don’t want it or rich people don’t buy t because they’re too smart are simply not true, so I gotta call BS when I see it. As far as solar being subsidized, if you research energy it becomes apparent quickly that all forms of energy are subsidized. The great thing about solar is there is a clear roadmap to being competitive without subsidies. The tax credit is scheduled to ramp down in a few years when prices are expected to drop enough that the subsidy will no longer be needed. Do you know of any other form of energy that has a clear roadmap to not needing subsidies? Legacy forms of energy using fossil fuels will need increased government money to stay competitive over time, while solar will not, so if you really don’t like energy subsidies then I would think solar would be your thing. Also that  $9500 number is just an example, every system is priced differently, some will be more than that some less. In California that’s an accurate number for an average sized system in new construction which is cheaper than a retrofit system. If you bother to calculate what the true cost of other forms of energy would be without being propped up by government, you will see that solar is cheap by comparison. And I’m not even suggesting to include external costs such as pollution and health issues related to burning fossil fuels, just the straight tax benefits. Energy has never been a fair playing field, it’s important to understand that.

@Russell Brazil If you guys are so rich, you should be able to afford a few fancy solar panels! Solar doesn't pencil out for everyone but increasingly for many people it does. 

Actually, if you don't have any solar panels in your neighborhood it's possible that your HOA doesn't allow it. The California mandate is one thing, but the reality of the rest of the country is that it's more common for solar to be prohibited by utilities or HOA's than it is for them to be mandated. With this in mind, if you're on the side of property rights you might be more concerned with the many places that still have rules preventing individuals from doing what they want with their roof and making that investment if they want.

Even if your HOA allows solar, I would respectfully argue that your immediate neighborhood is not big enough to give insight into an actual market. Zoom out to an area large enough to support business competition such as Maryland statewide and the data tells us the market has dramatically increased solar capacity by an average of 95% year over year for the last 17 years running, including 20,000% growth from 2006-2011. That kind of growth, a market that literally doubles or triples itself every year, signifies a high demand market in my book. Many of those 10 of the 20 richest counties in America you speak of are over the border in Virginia, where solar is expected to triple in capacity in the next 5 years https://www.usnews.com/news/best-states/virginia/a.... You can't tell me you're not in a high demand market for solar, or that consumers don't want it when the market is booming, excluding your small neighborhood apparently, which I'd be curious to know if your HOA actually prevents it. 

Do you have any data supporting solar reducing property value? That would go in the face of an often referenced study the appraisal institute conducted by tracking actual sales data from which they calculated that homes with solar sell for an average premium of $15k. https://www.nytimes.com/2015/02/22/realestate/sola...

Think about it: assuming house A and house B are identical other than one has solar and one does not (and you can't even see the solar because the panels are black and blend in to the roof), if house A has $2k/yr. electric bill, and house B has $0/yr. electric bill plus earns the owner $200/yr. selling SREC's back to the utility, you're telling me you'd pick house A? Most people would pick the house that makes money over the house that costs money. 

$10-11/month savings doesn't sound like a lot but when you calculate the IRR over 10 years including conservative rate increases the return is 10.3%.(https://solarpowerrocks.com/maryland/). In my book that's a great return for a zero risk investment that cost $0 out of pocket thanks to the low interest $0 down loan. As a real estate investor I love any time I can make an investment with 100% other peoples money, and profit $15k over 20years plus add an instant $15k value in my home, with $0 DOWN. Mind you these are Maryland numbers, CA numbers are much better, Maryland is a good market but it's ranked 13th in the country. You can say it's not a lot of money but for some people it is and it's money they wouldn't have otherwise had, which plenty of people like. 

You state you're not for or against solar, so I wonder why you are making negative comments about solar that I don't believe can be supported with data such as consumers don't want it, solar reduces property values, or that it's not cost effective. In my experience it is actually a product that many people want, which has been proven to raise home value and is often cashflow positive day one with no out of pocket cost. The alternative (not going solar and continuing to pay your utility bill) provides nothing but a negative return. Makes sense to me and a lot of other people. Rich people mostly actually, historically, but even that's changing now. Thanks to reduced pricing and new financing options the market is finally opening up to people who aren't rich, but up until now solar has been a rich persons item so it's odd to hear you and @BJ Dante claim rich people don't want it or don't buy it, it's simply not true, trust me I would know I've been selling tons of solar to mostly rich people for 15 years. I've sat in some of the richest people out there's living rooms and after 5 minutes of looking into it they cut me a check, to them it's a no brainer. 

You stated you don't think the savings are enough to move the needle but fact is, the needle is moving! The solar industry is growing 17 times faster than the US economy:

http://money.cnn.com/2017/05/24/news/economy/solar.... 

@BJ Dante

Originally posted by @Russell Brazil:

Originally posted by @Jim Goebel:

@Alex Bekeza

@Russell Brazil

I've only read the first two posts here.

Russell I typically find your posts to be very thoughtful and informed by lots of experience.  I would want to know what informs your opinion that this should be a choice.  Should all energy efficiency measures be a choice?  At what point does simple common sense energy efficiency measures cross over into where it just.. Makes sense.

What is your opinion on insulation, for instance?  Shouldn't we as consumers be assured through regulation and building codes, etc - that builders will build houses with insulation in them nowadays?  My opinion is that at some point (cost, payback, reliability, etc) - we have to honestly look at this stuff being mandated....

 Many people with solar panels in my market pay higher electric bills than those without. Not all markets, depending on weather and the varied cost of electricity are good candidates for solar panels. Further not every house is a good candidate for solar based on its positioning. Not all architectural styles fit solar, for instance roofs with lots of dormers.  Should we eliminate building cape cods and only allow colonials in order to accommodate the solar lobby?  

Particularly in our current housing shortage, with builders not building low end homes...we should not be forcing the price points of houses up to force on the consumer something that should be a choice.  

Consumers are free to get solar if they want, but they should not be forced to relinquish their rights to enjoy their property in the manner they like to satisfy the solar lobby. 

Id venture to say that 30-50% of homes in my market with solar, have the panels removed as part of the sales process. Energy costs in the midatlantic are simply very low, and our incomes very high so the cost of electricity is quite negligible. 

Russell, There are certainly a few outliers but in general solar does make economic sense in Maryland. This may not have been the case the last time you looked into it but it has been the case increasingly over the last several years as Maryland has passed tons of legislation favoring solar. A recent bill was passed that makes it even better. Maryland just committed to 50% renewables by 2030 and 14.5% of that is expected to come from solar, which is already causing an uptick in solar installs. https://pv-magazine-usa.com/2018/02/14/maryland-bi...

Maryland homeowners who financed or leased solar systems saved an average of $131/yr. in 2017 compared to those without solar and solar owners offset an average of $1,722 worth of electricity.  Average payback period for a purchased system in 2017 was 8 years (https://www.energysage.com/solar-panels/solar-pane...). 

Maryland has a $1,000 grant, an SREC program where solar customers receive about $140/year for their renewable energy credits, a favorable net metering program, plus state and federal tax credits. https://www.energysage.com/solar-panels/solar-reba...

Regarding your guess that 30-50% of homes with solar have the panels removed during a sale: If you have seen or heard of solar panels being removed it is likely they are old 4'x10' tilted up solar thermal panels, rare relics which heat hot water or glycol. Those have almost all been removed and the few remaining will be removed, however when people refer to solar panels in 2018 they are almost always referring to solar electric panels/ photovoltaics/ PV. PV panels can not be removed during the sale of a home without violating the 20 year net metering agreement with the utility so the number of modern solar panels being removed during a sale is 0. Why would someone remove them even if they could? Who doesn't like reduced operating costs? Solar is a selling point. The national appraisal institute has proven this fact based on sales data (This study by the appraisal institute shows that homes with solar sell at a premium and in a reduced time period compared to homes without, and it actually includes Maryland data) https://www.appraisalinstitute.org/solar-energy-sy...

As a realtor you should like solar, if the house is worth more and sells faster, your job is easier and commission higher. Just beware of leased systems as the transfer of the lease agreement can add an additional step in the sales process due to the buyer needing to assume the lease or the seller needing to buy out the lease. Many realtors have learned how to get in front of the situation and help manage that process to make it easier for both parties in order to streamline the sale. 

You are correct that not every home is suitable for solar. Good solar design requires large south, east or west roof surfaces where a nice clean array can be laid out. Dormers, shade, vent pipes, etc. create obstacles. I would not recommend onsite solar if the array(s) detract from the aesthetics of the home. I like clean rectangles. I believe the resale value is more likely to be effected positively if the array looks good, but ultimately it's up to the homeowner/buyer if they think it looks good or if they care about that or not. 

However you don't even need a roof to go solar in 2018. Many states such as Maryland and California have community solar arrays where you can purchase solar panels that are miles away from the home but still power that home using remote metering. The California mandate makes design allowances for roofs that prohibit onsite solar, and offsite solar can be tapped using remote net metering in cases when the roof orientation is not suitable or the homeowner prefers not to have rooftop solar, so the CA mandate doesn't actually force anyone to install solar on their roof.

I agree with you and others here that solar should be a choice, as a solar advocate I worry that ramming it down people's throats or at the very least having the optics of doing that could cause a negative backlash. The California mandate will boost the solar industry but there's a risk that other energy commissions across the country could react by punishing solar in those markets. Time will tell, but in general the solar industry is booming worldwide and all indications point towards continued rapid growth, with a few inevitable hiccups along the way.

Here's a link to some general info on solar in Maryland: https://solarpowerrocks.com/maryland/

@Account Closed That would depend on the specific lease contract. I don't sell leased systems but the contracts I have seen specify what the buyout price will be at various times throughout the contract term. There are various leasing products including prepaid leases. Yes it could be a deterrent to a buyer, I know a few realtors who have had deals fall through due to buyers not wanting to assume the lease, although I think that's rare. Yes I believe the buyer has to qualify with the leasing company to assume the lease however the credit spectrum is pretty big considering the buyer would have an electricity bill anyway, it's not adding a new bill it's replacing one bill with another lower one. Personally I wouldn't want to assume a lease, I would prefer to own the system. Leases were more common a few years ago before other financing options were available but now that low interest financing is available loans have become much more common. Loans are paid off during a sale of the home, they don't transfer to the buyer. 

@John Woodrich

Originally posted by @John Woodrich:

Another thing to factor in when adding solar to a house is that you may have to make the decision whether you want to replace your roof at the same time... Or factor in the added cost to remove everything during a re-roof in the future.

@John Woodrich correct, it's recommended to replace your roof before adding solar if the roof is expected to be in need of replacement in the next few years. One thing about this you may find interesting and/or be able to provide clarification on is whether or not the 30% tax credit may also apply to the cost or a portion of the cost of a new roof. Disclaimer: I'm a solar professional not a tax professional, I can not give tax advice and any info you read here is simply info on how someone might act. Anyone reading this should do their own research or speak to a tax professional before making a decision on how to file their own taxes. Here is an excerpt from the instructions for Form 5695 (the form you would need to fill out to claim the tax credit) which pertains to included costs:

What it looks like that sentence is saying to me is: a roof that is built to be able to hold a solar array counts as a structural component, and therefore counts as a cost of the project. For ground mounted systems any racking, concrete footers, earthwork and trenching etc. is included so a new roof may fall into that same category of associated expense. I have had tax professionals tell me they believe the roof or at least the portion of the roof with the solar on it can be claimed. Once again anyone reading this should talk to a tax professional about this before making any personal decisions on how to file their taxes.  

Here's a link to form 5695:

https://www.irs.gov/pub/irs-pdf/f5695.pdf

https://www.irs.gov/forms-pubs/about-form-5695-res...