Many solar leases and PPAs let you buy the system once it has been running for five years. A common belief on solar forums: by then the company has depreciated it, so its “fair market value” is close to nothing and the buyout should be nearly free. It isn’t, and the reason is that two different numbers are being mixed up.
The number that goes to zero is the company’s tax value (its tax basis), the amount left to write off on its own taxes. The buyout price is set by the fair market value: what a willing buyer would pay for a working system that still has 20 years of power, or 20 years of payments, left in it. For a typical 8 kW system that works out to roughly $9,000–$30,000, not zero.
The leasing company owns the panels, so it writes them off. Systems that began construction before 2025 were 5-year property under the tax depreciation rules (MACRS). Because the first year only counts as half a year, the write-off runs across six tax returns.
By the sixth tax year, the amount left to write off is at or near $0. That is where the “it’s fully depreciated” idea comes from.
It’s an accounting schedule. It says how fast the owner gets to deduct the cost. It says nothing about what the system would sell for.
The IRS’s own definition: “the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.”
No willing seller hands over a system that still earns them $150+ a month for 20 more years just because their tax deductions are used up. The same goes for any fully depreciated rental property: it doesn’t sell for $0.
This is the number your buyout is based on.
The contracts spell this out. A Sunrun lease agreement we reviewed lets the customer buy the system at the fifth anniversary, at the end of the term, or when they sell the house. For the price, it says Sunrun will “hire an independent appraiser to estimate the value of a comparable in-service photovoltaic solar system in your state and Utility service area,” taking into account “the Solar System’s age, location, size and other market characteristics such as equipment type, service costs, the value of electricity in your area, and any applicable Incentives.” Depreciation isn’t on that list. The value of the electricity is.
Appraisers use three standard methods and weigh them against each other. Each one answers the question from a different side:
None of them starts from the tax basis.
Here’s a typical case, run three ways. The assumptions are stated so you can swap in your own numbers in the calculator below.
| Way of looking at it | Low | Middle | High |
|---|---|---|---|
| Tax basisWhat’s left to deduct on the owner’s taxes | $0 | $0 | $0 |
| IncomeRemaining 20 years of lease payments, discounted at 10% / 8% / 7%. Low case: $110 flat. Middle: $140 rising 2.9%. High: $160 rising 2.9%. | $11,200 | $23,600 | $29,300 |
| Energy valueThe power it will make over 20 years, valued at 9¢ / 10.7¢ / 13¢ a kWh, rising 2–3% a year, discounted at 10% / 8% / 7%. | $9,200 | $13,800 | $18,200 |
| CostA new 8 kW system at $2.50 / $2.90 / $3.30 per watt, less 20% for five years of a 25-year life. | $16,000 | $18,600 | $21,100 |
Every valuation method lands between about $9,000 and $30,000. Only the tax basis lands on zero, and it isn’t a valuation method.
The appraisal tells you what the company will accept. Your question is simpler: is paying the buyout cheaper than keeping the lease? Add up what changes if you buy (middle case):
“In today’s dollars” assumes your money would otherwise earn about 7% a year.
If the buyout is below your walk-away price, buying saves money. If it’s above, keeping the lease is cheaper. In the middle case the likely buyout (about $23,600) and the walk-away price ($24,700) are only about $1,000 apart. That’s typical, because both come from the same stream of payments. A buyout usually isn’t a windfall. It makes the most sense when:
Before you buy, check what happens to the warranty, the production guarantee and service. Once you own the system, those usually end or change.
“Current” means today’s payment, after five years of increases. On a PPA, use your average monthly PPA bill. Output per kW is after five years of wear. For power value, use your retail rate for power you use at home and your plan’s buyback rate for what you export. 10–11¢ is a fair blend in most of Texas.
Sources. IRS Publication 561 (definition of fair market value); IRS Instructions for Form 4562 (solar as 5-year property, and its removal for projects beginning construction after December 31, 2024); IRS Publication 946 (MACRS and the half-year convention); a Sunrun residential lease agreement (purchase option and appraisal language). The worked example uses our own stated assumptions, not any specific company’s appraisal. Your contract governs. Some set the buyout by a schedule, or the greater of a schedule and the appraisal. Read the purchase option section before you rely on any number here.