Should You Make the Switch to Solar Energy?

Homeowners are converting to solar power for good reason. U. J. Alexander/Shutterstock

By Robyn A. Friedman From Kiplinger’s Personal Finance

If you’re thinking about converting your home to solar power, you have plenty of company. According to the U.S. Department of the Treasury, more than 750,000 families who filed 2023 tax returns through May 23, 2024, claimed residential energy tax credits for rooftop solar, reporting more than $20.5 billion in qualified solar-electric property expenses.

Homeowners are converting to solar power for good reason. Reducing your electric bill, or eliminating it entirely, is certainly an appealing prospect—especially if you live in areas where utility costs are high or where heating or air conditioning is required for most of the year.

Just ask Shaun Eli Breidbart, 63, a stand-up comedian in Pelham, N.Y., about half an hour north of Manhattan. In July 2022, Breidbart added 22 solar panels to his four-bedroom, Colonial-style home. “I switched to solar for a couple of reasons,” he says. “I care about the environment, but that was a side benefit. The main reason was economic—I wouldn’t have done it if it didn’t pay for itself.”

Breidbart still heats his house with natural gas, but he uses electricity to power the home’s central air conditioning and appliances and to charge his Tesla Model Y. His electric bill, which previously averaged $300 a month, is now about $32 and consists mostly of a connection fee, he says.

Breidbart took advantage of both federal and state tax credits to help fund his solar conversion. The Inflation Reduction Act of 2022 includes a provision that increased the federal residential solar energy tax credit to 30 percent of the cost of solar panel installations between 2022 and 2032. That credit decreases to 26 percent for systems installed in 2033 and 22 percent for systems installed in 2034. The credit will expire in 2035 unless Congress renews it.

Thanks to the tax credits, Breidbart’s net cost for the 22 solar panels was $10,078, compared with the $21,540 purchase price. He expects to break even—in other words, his investment in solar technology will be fully offset by his energy savings—in less than five years.

Evaluating Your Energy Savings and Payback Period

The basic formula to calculate how soon you’ll recoup your investment in solar is to divide the cost of your solar installation by the amount of money you expect to save each year. For example, let’s assume your solar system will have a net cost of $27,000 after applying eligible incentives. If you spend $3,600 a year on electricity ($300 per month) and expect to reduce your electric bill to zero by installing solar panels, you will break even on your investment in 7.5 years. That is the average payback period for a solar installation, according to EnergySage, an online solar marketplace that allows homeowners to comparison shop among prescreened installers. EnergySage also offers a free calculator to estimate your potential savings and payback period at www.energysage.com/solar/calculator.

Lisa Vandervalk made the decision to convert her 2,000-square-foot home in Mendon, Mass., to solar in July 2023, and her system was completed and activated in April 2024. Vandervalk, 44, who manages a winery, installed 30 panels on her four-bedroom home and uses the power it produces to run appliances and air conditioning and to charge her car. She still uses oil for heat and hot water. “We could have gotten a cheaper system, with fewer panels, but we figured it was better to go a little bit bigger,” she says. All of the power her panels produce goes back to the grid, where it’s “banked” until she needs it.

Prior to converting, her electric bill averaged $300 a month. Now, it’s zero. Vandervalk paid $40,000 for her system, which had a net cost of $27,000 after federal and state tax credits. She expects to break even in less than eight years.

Financing Options

These are the most common methods of financing a solar conversion.

Paying cash. It’s the simplest way to finance your solar system: Just write a check, if you have enough in savings to cover the full cost up front. You’ll pay no interest, and you’ll own the system outright.

Tapping home equity. Many homeowners are sitting on a cache of, well, cash right now, thanks to the increase in home prices in many parts of the country. At the end of the third quarter of 2024, the average homeowner with a mortgage had $319,000 of equity in their home, of which $207,000 was tappable (meaning that the homeowner could borrow against it while maintaining a 20 percent equity stake in the house), according to Intercontinental Exchange (ICE), a technology and data provider. With that much equity, many homeowners are opting to use a home equity line of credit (HELOC) or home equity loan to finance their solar conversion.

Financing through the solar contractor. Many solar contractors offer financing, usually through associated third-party lenders. A contractor may encourage you to finance the deal—and the monthly payment it offers, which typically reflects pricing after the tax credit is applied, may look enticing. But read the fine print. “Dealer fees are often baked into the price you pay,” says Mark Durrenberger, founder and president of New England Clean Energy in Hudson, Mass. “Always ask for a cash price to compare.”

Leasing the system. If you decide to lease your solar system, you may not have any up-front costs, but you will have a monthly payment for the entire term of the lease (typically 20 years), according to EnergySage. And remember that if you lease your solar panels, you won’t own them—and, perhaps more importantly, you will lose access to the 30 percent federal tax credit, which is available only to owners; the leasing company will get the credit instead.

Leasing could complicate a future sale of your home as well. “A buyer has some choices to make when purchasing a home with leased solar panels on it,” says Bill Banfield, chief business officer for Rocket Companies, parent company of lender Rocket Mortgage. “They can decide they don’t want the panels and ask the solar company to remove them. If the buyer does want to keep the panels, and they don’t choose to pay off the outstanding lease up front, however, the ongoing payment to the solar company will be included in their debt-to-income ratio used for the mortgage qualification and pricing calculation.” That could impact the buyer’s ability to qualify for a mortgage.

Tax Credits and Other Incentives

The federal tax credit for solar-power systems is a dollar-for-dollar reduction in the amount of income tax you would normally owe. To be eligible for the 30 percent credit, the solar system must be installed at a residence you own in the United States. Eligible expenses that can be applied toward the tax credit include the cost of the solar panels, labor costs, wiring and other accessory equipment needed to run the system, energy storage devices such as batteries, and sales taxes on eligible expenses.

You may be entitled to state or local tax credits as well, and some local utilities offer rebates as incentives. The Database of State Incentives for Renewables & Efficiency (DSIRE) website, at DSIREUSA.org, is a comprehensive source of information on available renewable energy and energy-efficiency rebates and incentives throughout the country. You can enter your zip code to see a list of programs that may be available to you.

©2025 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

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