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Northern California Solar Company
Is it better to lease or purchase a residential solar system?
Let's look at this question from 3 different viewpoints.
How does lease versus purchase affect...
*The federal tax credits and rebates I receive?
*The savings I receive on my electric bill?
*The value of my home?
Tax Credits & Rebates: When you purchase the system, you receive the benefits of the California State rebate and Federal Tax Credits. When you lease the system, the leasing company gets those benefits. So, obviously, purchasing the solar system is more advantageous for you than leasing when it comes to rebates and tax credits.
Electric Bill: If you purchase your solar system, you can save up to 100% of your electric bill. Your monthly savings will increase with time and the cost of electricity produced by your solar system will be fixed for the life of the system.
When you lease, you will have some savings each month, but those savings will be minimal. The reason is that over the life of the lease, the amount saved each month will never increase because of the binding nature of the language used in most leases. That language often specifies an increase in the monthly payments of the lease, from 3% to 10% annually.
Home Value: When you purchase a solar system, your home increases in value. The Appraisal Institute on Residential Properties, in a study funded by HUD and the EPA, specifies that your home's value will increase $20.73 for every dollar you receive in annual electrical savings. The amount of increased value is often more than the purchase price of the system. Additionally, in California, Prop 73 prohibits any tax on the increase in the appraised value of your home.
When you lease a solar system, there is a chance that a solar lease could actually hurt the value of the home. Here's why: When you go to sell your home, the lease must transfer with the sale of the home or you must buy out the lease. Buying out a lease can be costly. However, transferring the lease obligates the future homeowner to the terms of the lease, which may not be attractive to the buyer because of the uncertainty of the fair market value purchase option contained in most leases.
In summarizing Lease vs. Purchase, when it comes to a residential solar system, experts favor purchasing the system over leasing.
With a commercial system, Lease vs. Purchase is analyzed differently because different accounting rules apply. The primary difference is the ability of a commercial enterprise to use accelerated depreciation. In some instances, depending upon the objective of the enterprise, leasing will turn out to provide a more favorable financial result.
