Home and business owners who are planning to install solar energy systems, need to understand how solar arrays fare over the years.
The long-term value of a solar system is what drives up the interest in solar, alongside the tax benefits. So if you’re thinking of adding a solar array to your property, you must have come across this question – is solar going to devalue like a cell phone over time or hold value like a home?
The answer is both yes and no.
Just like any gadgets, it will see a reduction in performance but it’s nowhere near as rapid as a cell phone. Solar panels easily last 25-30 years, often outlasting the duration of the family’s stay.
The value here is initially measured against the cost of investment. For homeowners, the value of solar is directly reflected on their property. But for commercial solar projects, the ROI can easily be increased with accelerated depreciation of solar projects.
What is solar depreciation?
Depreciation is the lessening of the value of solar with time.
The Modified Accelerated Cost Recovery System (MACRS) is a game-changer in this regard. It helps businesses shift to solar quickly and cut down on costs. For solar projects, businesses can recover their cost in five years. According to current IRS rules, the depreciable basis is half of the investment tax credit (ITC). In 2021 and 2022, the ITC is at 26% which means the depreciable basis would be 87% of the total installation cost.
Thanks to the new changes in the Tax Cut and Jobs Act, businesses are now able to depreciate 100% of their cost basis in the first year itself. On top of that, there are other federal and state tax rates related to solar as well.
The bottom line is this – MACRS addresses solar depreciation by helping people to recover their costs quickly and offset the year-on-year depreciation, which is already negligible.
The added value of solar
For owners, the faster they repay the solar loan and recover their investment, the bigger the value a solar array assumes.
On average, solar panels start paying for themselves in 5-6 years. Most homebuyers prefer to buy a house with a completed solar lease. If a house is free of solar lease repayment terms, it can see a huge jump in the market value.
The market value of a house with a solar array sees an increase because –
- People prefer the green, sustainable mode of energy consumption for the future
- Solar energy systems can mitigate and often eliminate high electricity bills
- Homeowners can have complete control over their energy consumption needs and patterns
A connected solar system can transfer excessive energy back to the grid helping owners earn money in the process
Solar as a technical gadget is prone to deprecation but the yearly rate is extremely slow. On top of that, solar is seen as a long-term investment as it will power your property for decades. In that way, solar does hold its value over time and often increases the value of the home as well.