Do rooftop solar and insulation payback periods need to be adjusted for income and property tax rates?


Friends of mine in Massachusetts have been installing rooftop solar. Apparently there are some government handouts that expire at the end of 2016 that make it much more attractive to do now.

I’m wondering if the payback periods are not correctly calculated for a homeowner who is using savings that would otherwise be invested in stocks and bonds. Suppose that a solar array costs $50,000. Had that money been invested in stocks and bonds it might have yielded 2 percent or $1,000 per year. This $1,000 of income will be subject to a tax rate of anywhere from 25-40 percent, however, depending on city and state. The energy generated by the solar array and used within the home, however, is not taxed as income (but maybe if you end up selling it all back to the power company they will issue a 1099 and then you fill out a Schedule C  for your power generating business?). Thus electricity for the person who buys a solar array goes from being paid for with post-tax money to being paid for with pre-tax money, no?

This perspective could be entirely wrong, though, if we bring in property tax. What if there is a 2 percent property tax on the extra $50,000 in home value? It seems that at least in some states there are specific exemptions preventing towns from raising assessments due to solar energy systems (e.g., Massachusetts).

What do readers think? Is now the time to do rooftop solar? On the one hand the government has set things up so that people who live in crummy apartments have to work longer hours to buy solar panels for rich homeowners. On the other hand, if one waits a few years the technology will presumably improve. I don’t like the idea of buying anything for the house unless it is sufficiently common to be found at Home Depot.

9 thoughts on “Do rooftop solar and insulation payback periods need to be adjusted for income and property tax rates?

  1. I have bought solar panels at Home Depot (in Canada).

    In Southern California (at least with my utility) they cannot pay you for the electricity, they can only reduce your bill. And (I believe) there is no carry over month-to-month. You also cannot transfer any credit between accounts, so I have a friend who has a weekend place out in the desert and it generates WAY more than she uses, but she can’t use that credit against the bill for her town house in Malibu.

    How does the utility account for electricity generate, which they sell, that they don’t have any cost for?

  2. >The energy generated by the solar array and used within the home, however, is not taxed as income.
    This perspective is mostly wrong technically: due to technical limitation of equipment essentially all generated energy is pumped back into the grid and credited (i.e. grid is used as ballast for unpredictable source). As such, solar installation doesn’t operate if grid is down, i.e. you can’t use it instead of emergency generator, for example.

  3. Not exactly a rooftop solar system, but last year I installed a 20w solar-powered attic fan in my house. The two 32-inch square solar panel mounts on the roof. The fan pulls much of the hot air out of the attic and lowers the temperature on the second floor by 5 degrees and my monthly cooling bill by $50. The fan runs smoothly and quietly and continually during daylight hours even on cloudy days. $110 on Amazon.

  4. @SK: it’s a little more complicated than that. Most PV systems don’t work without the grid for a few reasons: batteries are expensive and bulky, the inverters need to sync with the grid cycle to prevent interfering waveforms, and you’d need an automatic transfer switch to prevent backfeed into a dark grid (or you’d kill people).

    Mostly though, it boils down to cost. As Fazal mentioned, these systems are usually leased, and the solar operators are exploiting the tax credit opportunity which is a percentage with a cap — so beyond a certain price point, there is little incentive to push the product. Which I guess is reasonable, from a govt policy perspective…lead acid batteries are not necessarily the right thing to subsidize, so sizing the systems (rebates) for non-storage use is pretty logical stuff.

  5. SK –

    Isn’t the Tesla Powerwall battery supposed to be used to store solar energy instead of pumping it back into the grid?

  6. I have heard that leased solar on your house can make it difficult to sell or refinance because the solar company may have a lean on your house.

  7. This story could be apocryphal, but I seem to recall stories during the Massachusetts snow-pocalypse of two years ago of the supports for these leased solar arrays punching through the roof they were installed on. I can certainly believe the leasing company has much less incentive to do a good, 360 degree job than the homeowner would on their own account.

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