Does Installing Solar Panels Increase Property Taxes?
Understand how solar panels impact property taxes. Explore assessment nuances, potential exemptions, and ownership models to clarify their financial effect.
The increasing popularity of solar energy often raises a significant question for homeowners: does installing solar panels lead to higher property taxes? While many home improvements can affect a property’s assessed value, the answer is not a simple yes or no. The actual impact depends on location and system ownership.
Understanding Property Tax Assessment
Property taxes are levied by local governments, such as counties or municipalities, based on the assessed value of real property. This value represents a portion, or sometimes all, of a property’s estimated market value. Local tax assessors determine this value through appraisals or mass valuation techniques, considering factors like size, location, age, and construction type.
Permanent home improvements, like adding a new room or a garage, generally increase a property’s market value. This can lead to a higher assessed value and increased property tax obligation. Assessors update valuations periodically, often annually or every few years, to reflect market conditions and property characteristics.
How Solar Installations Influence Property Value
Professionally installed and owned solar energy systems are considered permanent improvements to a home, and they can significantly increase its market value. This appreciation stems from benefits like reduced monthly electricity bills, environmental advantages, and enhanced appeal to potential buyers. Studies show that homes with solar panels often sell for a premium compared to similar homes without them.
Research indicates homes with owned solar panels can sell for 5% to 10% more than comparable properties, with some studies suggesting an average increase of 6.9%. This can translate to tens of thousands of dollars in added value, with estimates ranging from $15,000 to $29,000 for a median-priced home. Such an increase in market value can lead to a higher assessed value for property tax purposes. The exact influence varies based on the system’s size, efficiency, age, and the specific dynamics of the local real estate market.
Property Tax Exemptions for Solar Energy Systems
Despite solar panels increasing a home’s market value, many states and local jurisdictions offer property tax exemptions or exclusions for solar energy systems. These incentives encourage renewable energy adoption by mitigating or offsetting potential property tax increases. When an exemption is in place, the solar system’s added value is partially or fully excluded from the property’s assessed value for tax calculation.
These exemptions can take various forms, including full exclusions, partial exemptions, or exemptions for a specific duration, such as 10 or 20 years. Over 30 states, along with Washington D.C., have some form of property tax exemption for solar panels. Homeowners should research specific laws and incentives in their state and local area, as policies vary significantly and may require an application.
Tax Implications of Leased Solar Systems
The property tax treatment of solar energy systems differs when panels are leased from a third party rather than purchased and owned by the homeowner. In a leased solar arrangement or a Power Purchase Agreement (PPA), the solar panels are considered the personal property of the leasing company or solar provider.
Since the leased solar system is not a permanent fixture of the homeowner’s real property, its value is not added to the homeowner’s assessed value for property tax purposes. This distinction arises from the difference between real property (land and permanent structures) and personal property (movable assets). Therefore, homeowners with leased solar systems do not experience an increase in their property taxes due to the installation. Some states have enacted legislation to confirm that leased and third-party-owned residential solar systems are exempt from property taxes.