One issue facing many homeowners, is structuring your system financing.
Before you sign on the dotted line to buy your system, consider these points:
- What is the total cost of your system, installed? Make sure you include any permits, inspection fees and connection fees into your total.
- Are you going to finance all, some or none of your total costs? Before you can know the amount you will be financing, you will need to decide if how much of the costs you will finance.
- What financing options do you have? Many banks will only finance the systems for 5, 7 or 10 years. The length of the loan, along with the amount financed will determine whether you system will: earn enough to pay the loan, be short (in which case you will have to add some money to cover the loan payments) or make more than the loan cost.
- Is the best option to pay cash, or reduce the loan costs by using some of your savings to buy the system? Your solar system income is business income. Interest expense can reduce this income amount and help reduce the amount of income tax paid on it.
Some things to consider when buying a system:
- The more you pay for a system, the longer it will take to pay off, so the less income you will earn over the course of the contract. If you pay the system off in 5 years, you can earn income for the next 15, but if it takes 7 - 10 years, almost half of your earning power is gone.
- If you can pay off a system in just 5 years (but it uses all of the income the system makes to do this) you get 15 years of full income. If you spread the cost over 7 or 10 years however, you can be earning an income from day 1. This will earn you less over the term of the contract, so you will need to decide what is most important for you, a steady income for 20 years, of a larger income for 10 - 15 years.
Deciding how best to structure your financing and how it affects your income is important. As an accountant, professional investment counselor or a tax consultant to determine what is best for you.
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