HERO program or pay cash?

[TypeRx]

Hi all:

Just found this forum today, and have already blown several hours reading through threads!

In any case, I am planning on going solar (thinking about a 7.1 system with 24 300W LG panels and Enphase micro-inverters) and was offered a $3.30/watt system by a local installer (who has done a good amount of electrical work for me previously). While I am prepared to pay cash for the system, he brought up the idea of the HERO program. While I am generally against financing, the ability to reduce tax liability on the additional property tax assessment is interesting. I would only consider a 5-year plan.

I am trying to find more information but am unable to find many negatives other than:
1. Potential for pre-payment penalties (need to get paperwork from HERO as I can't confirm what the actual penalties might be, if any)
2. You are paying interest (but this cost is offset by additional tax deduction -- need to do the calculations)
3. Assessment is in the first position, which makes it more difficult for mortgage lender to collect (not an issue in my case)
4. If I sell before assessments are paid, it might complicate the title transfer or buyer's interest in the property (have to be prepared to payoff the assessment or discount home to cover the payoff amount in an extreme example)

Who here has utilized the HERO program and what is your feedback?

Thanks!!

[DanKegel]

I'm considering it, but since I was going to refinance anyway, I may just tack the $30k for solar onto the normal refinance and avoid the fees. Same tax-deductable benefit.

[ericf1]

Here in CA, solar is exempt from property tax through at least 2025. That might be different where you live, but you definitely want to verify. Also know that HERO is not free, there is a significant funding fee. For me, financing through my mortgage was a much better choice, since I was refinancing to a 15 year loan anyway. I saved enough that even with $17k rolled into my loan, my monthly payment was still lower than before. And I eliminated my electric bill.

[solarfrank]

If you have cash go for cash.
Hero claim you can deduct full payment i found it not accurate, you can deduct just interest . Consult with your accountant first, don't take my words .

[lkstaack]

I'm using it, but I haven't filed with it yet. There is not a definitive answer to the HERO deductibility question. Most members of this board will advise you to talk to a tax professional about HERO or advise against it. After all, the tax code does not specifically state that you can deduct it HERO interest or principle.

Like Mello-Roos "property tax", our current tax code does not address HERO loans. HERO payments will be reported on your property tax bill (like Mello-Roos) along with everything else that is deductible. Internet searches will show that HERO loan deductibility has been a topic of interest to a few city government representatives with city attorneys opinions reporting that HERO interest is deductible and possibly the principle.

Many tax professionals have recommended that Mello-Roos not be deducted because it does not meet the same standards as regular property taxes. However, the Federal Government doesn't penalize people for doing so (even while not stating that it is permissible) and California has recently backed off their position of refusing deductions on it.

Will Federal and State governments treat HERO the same as Mello-Roos? That remains to be seen. There is strong political favor for HERO by both liberal and conservative factions. HERO encourages conservation and doesn't use government money. At the same time, there isn't a strong reason to use HERO if it isn't deductible.

[TypeRx]

Here in CA, solar is exempt from property tax through at least 2025. That might be different where you live, but you definitely want to verify. Also know that HERO is not free, there is a significant funding fee. For me, financing through my mortgage was a much better choice, since I was refinancing to a 15 year loan anyway. I saved enough that even with $17k rolled into my loan, my monthly payment was still lower than before. And I eliminated my electric bill.

I am in Orange County..I should have stated that in the original post. In any case, I've heard that HERO charges a 6-7% initial fee, which in my case would be about $1500-1600. I'll get confirmation on what it actually is from them if I continue to consider the HERO program. The point brought up about taxes is a great one. If I can't deduct anything or only interest, it quickly becomes a waste to consider. If I can deduct principal or principal + interest, I think it would make sense. But I'll confirm with the accountant that prepared our taxes this year and see what his thought is.

[J.P.M.]

I'd only add here that while HERO programs can have some have advantages, I've seen as much as 15 points added to the loan. READ EVERYTHING CAREFULLY BEFORE SIGNING.

[sabersix]

Here is a link to the program application. I found the funding fees to be very unfavorable. You could do better with a 4.99% solar loan from San Diego metro credit Union.

https://www.heroprogram.com/SanDiego/Documents/HEROApplication.pdf

[Gmoney!]

HELOC is probably your best bet if you want a 5 year payoff.

I did HERO over 15 yrs because I already had a HELOC.

The effective interest rate in HERO for 5 yr is actually negative or less than 0% and that's just by using interest as deduction.

There are no prepayment penalties for HERO. Same is usually not true for HELOCs.

I financed $11,000 and payment is at $120 before any tax savings, should be about $100 per mo after tax savings.

Aggressive CPAs may deduct full amount but technically you should only deduct interest.

[kylechoffman]

The last update on Mello Roos (sorry for the thread-jack but wanted to add something to that comment):

http://www.bubbleinfo.com/2012/04/16/mello-roos-is-deductible-now/

[lkstaack]

Aggressive CPAs may deduct full amount but technically you should only deduct interest.

Technically, it's a judgement call. The tax code doesn't address HERO specifically, so you must extrapolate from existing property tax law. Some CPAs will advise not to deduct a thing, others the whole thing, and some advise just the interest. The Tax Assessors office (at least in San Diego) doesn't itemize the HERO loan with principle and interest on your tax bill; it's just one line for everything you payed. If you want to just deduct the interest, you'll have to figure out what that part of the payment was.

[Gmoney!]

Well I will give my CPA my property tax amount paid for year. Let him figure all that out

[lkstaack]

The last update on Mello Roos (sorry for the thread-jack but wanted to add something to that comment):

http://www.bubbleinfo.com/2012/04/16...eductible-now/

I looked into HERO tax considerations prior to assuming my loan. What I learned is that the tax code concerning Mello Roos and HERO is very squishy. For years, many tax professionals recommended that clients not deduct Mello Roos. However, many people did. Some of those got audited by the IRS. Mello Roos deductions were not allowed by some of the auditing officials. Some of those cases were appealed or went to tax court. In all cases, the Mello Roos deduction was allowed. Of course, tax code still hasn't changed and it still doesn't say that you can deduct Mello Roos. Consequently, the California FSB took the position that Mello Roos wasn't deductible for CA state taxes. Someone asked the IRS for an official position on the matter and the FSB changed their position as a result.

What does any of this have to do with HERO loans? While they are very different from one another, they both can be interpreted by reasonable people to fall under property tax code. Some professionals advise not to deduct HERO loans, just like many professionals used to advise not to deduct Mello Roos fees.

Politically, HERO loans are a win-win. Conservatives love it because it provides easy access loans without government subsidies. Liberals love it because it is targeted for green energy. HERO loan business is expanding with what I'm sure is a lot of political cover. However, HERO loans are expensive compared to other loans. I doubt many people would want to use them if they weren't deductible; I know I wouldn't. While I am paying more for a HERO loan, I will be seeing most of that money coming back to me at tax time.

[silversaver]

You pay them money on low interest(claim) but with high bank fee(like those 0% interest credit cards but charges you 4% transaction fee.), and you trying to get part of it from tax deduction. (you are happy)

Where did we find all these smart ideas? true, American way of saving money. very smart.

if you have cash, use it. leaving in the bank will do you nothing.

[TypeRx]

Thanks guys for the feedback. I have no problem just paying in cash -- I actually would prefer NOT to pay this down over 5 years if interest is involved. The only factor that would swing that is if I could deduct the full HERO (principal+interest) payments along with my property taxes. It appears this is a controversial area that might not fly if audited. I am waiting for an opinion from my accountant but I haven't heard from anyone here that used the program that has also deducted the full amount. So, probably a no-go.

Regardless, excited about getting a system up and running before the peak of summer. Last year we avoided A/C use (it was out of sticker shock from CA electric prices...we moved here recently from the midwest) so our use only averages 966 kW/month but we will definitely be more liberal with the A/C with solar.