Installing Solar On Rentals & Charging Tenants For Utilities

[Petur Karlsson]

Hello everyone! 

I'm set to convert my primary residence into a long term rental property. I installed solar panels on the roof back in August 2019 and over one year, the panels produced over 11 MW of electricity, minimizing our electric bills (ZERO for the summer and much lower for the winter). The internal rate of return is anywhere from 7 - 10%. 

My plan is to bake the electric output into the rent and have the tenant charge the difference, ie. whatever amount comes up on the utility bill. 

Do you have any experience with solar panels on a rental property? If so, what approach do you take? I'm actually interested in repeating this approach with future rentals, as I love to be environmentally friendly and imagine solar panels becoming more trendy in the future. 

If the government also returns to a policy of federal income tax breaks for the full ticket price for the solar panels, it could be a healthy fit to proactive tax planning as well. We got a 30% tax break for the cost of the system and I used a home equity loan to pay for it, thank you IRS for the free money! 

The panels also generate alternative energy credits, which utility companies pay for to offset their own emissions. I get 11 credits or so per year, which (in my state) cost anywhere from $25 - $50 each currently.

Another thing I'm wondering about; can I depreciate the panels over a set amount of time, considering they are being used for business purposes? If that's possible, installing solar panels on rentals is an amazing strategy, given that the roof is ideally angled and sloped. 

Thanks for reading, everyone, I appreciate any input to the discussion!