US Solar Tax Incentives and Credits - A lesson.

**J.P.M.** · 04-05-2024, 04:50 PM

Originally posted by Rade

We met with our CPA for our 2023 taxes and got a education in US solar tax credits. Depending on how you read the government DoE literature will determine how it is interpreted. I interpreted the government program as "You will get 30% of the system costs back in tax returns". What the program offers is 30% in tax CREDITS. Meaning that we will get the monetary value of 30% the cost of the solar installation applied to our overall income tax liability. What that did to us for this year was it gave us a 100% refund on all the income tax paid in 2023, and a substantial balance to be applied to future tax liabilities. Our accountant advised us, based on our income, to change our IRS Standard Deductions to zero until the balance of the tax credit is exhausted (should be about 3 years). Our CPA also indicated that the solar tax credits (providing politicians don't muck with the current program) should not expire, unlike the tax credits for the upgrades to the home heating systems; those have a two year expiration on the credits (and were used in this tax season).

As I mentioned in other posts, solar is Rhode Island is a rather new concept. There is still a lot of questions on the State's take on solar, given we're a major hub for heating oil in New England. It has taken a lot of effort to get RI to even think green. But it's getting there.

So net: If you are expecting a major windfall tax return on having solar installed, it's not going to happen. At least not all at once. The upside; we will have that much more in the paycheck for a few years.

Rade

When you write: "...change our IRS Standard Deductions to zero..." are you referring to the W-4 amount(s) withheld from your paycheck(s) ?
I believe the IRS standard deduction is fixed for every year and filing status. For example, for tax year 2023 it's $27,700.00 for taxpayer filing status of married, filing jointly and the standard deduction amount, whatever your filing status, is not changeable.

As for the solar energy tax credit, it'll take place, it just may not happen all in one year, but it will happen and usable even if it's a carryforward of unused tax credits from prior years. Always been that way.

If you want the tax credit sooner (or some form of sooner), depending on each taxpayer's situation, there may be ways to get some or all of the tax credit sooner (sort of).
I used the fairly common method of converting some of my traditional IRA assets to a Roth IRA for example. Doing so, one way to look at it becomes that your IRA becomes a tax haven for what becomes a permanent tax credit.
Doing so, the delay before you get use of the tax credit (of a bigger refund) is longer than taking the tax credit against W-2 current income, but depending on your situation and your opinion, it may be one alternative. There are others.
See your bean counter for other methods that may be applicable to your situation.

I'm not a CPA and I don't play one on TV.

**Rade** · 04-06-2024, 01:41 PM

Correct on the W-4; the withholding. I'm retired, I sent int the note to the Social Security to stop withholding taxes, my spouse manually filed the update to the W-4 Friday.

What we learned were that the tax credits for our heating upgrades (replaced oil burners with heat pump for water and HVAC) are that those credits, if unused, do expire in 2026. The solar tax credits (at least for now) do not have an expiration.

We also have well funded traditional IRA and a well-used Roth IRA (I lived off that until SS kicked in this year). I'm trying not to move the money around, but it's there if we need it.

**peakbagger** · 04-07-2024, 10:12 AM

While we are talking taxes and rebates, be aware that the new IRA act rebates are not retroactive. They can be quite lucrative for someone with income under the Adjusted Medium Income (still be defined for IRA act purposes).Low income households, those making less than 80% area median income (AMI), can receive 100% of the project cost (equipment + installation) in a rebate. Moderate income homeowners (making 80% to 150% AMI) can receive 50% of project cost in a rebate.

The government has assigned tens if not hundreds of millions to each states but in hopes that the states will be better at keeping out fraud, each state has to create a new bureaucracy to disperse it, develop new regulations and then get those regulations approved. Some states are far more interested in the program than others. Inflation Reduction Act Investments by State | Natural Resources Conservation Service (usda.gov) The big thing to remember is unlike federal programs, if you spend a dime before the state program is approved you most likely will not get the rebates.

Like many incentive/rebate programs the devil is in the details and some bad actors will tell lies to sell equipment.

**Rade** · 04-09-2024, 04:42 AM

"The government has assigned tens if not hundreds of millions to each states but in hopes that the states will be better at keeping out fraud, each state has to create a new bureaucracy to disperse it, develop new regulations and then get those regulations approved. Some states are far more interested in the program than others. Inflation Reduction Act Investments by State | Natural Resources Conservation Service (usda.gov) The big thing to remember is unlike federal programs, if you spend a dime before the state program is approved you most likely will not get the rebates."

Yes, we fell into that trap. AFTER we spent the money for all the upgrades to the house; renovations, additions, solar, heat-pumps, etc. we were told to apply for the energy upgrade incentive programs offered in the state. Slight problem - there was nothing left to do that would have qualified us for the program except to spend another $15k to tear into the plaster and install additional insulation in an area of the home that had not been renovated. So, do we invest the extra money to get a $1200 rebate? We gave that a hard no. Had we known of the program beforehand, we could have had the energy audit done and set aside well beforehand.

US Solar Tax Incentives and Credits - A lesson.

US Solar Tax Incentives and Credits - A lesson.

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