The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 75 - Tax Benefits of Solar
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This episode explores the financial benefits of solar investments, particularly how recent tax credits can significantly reduce costs for homeowners and businesses. It highlights strategies for leveraging these credits to create lucrative financial opportunities while contributing to sustainable energy solutions.
• Discussing the Investment Tax Credit and its current 30-40% rates
• Identifying additional tax credit opportunities for low-income and energy communities
• Benefits of solar installations on primary residences versus business properties
• Combining tax credits with depreciation for substantial savings
• Exploring solar panel rental business models as a financial strategy
• Importance of holistic tax planning with knowledgeable advisors
• Transitioning quarterly tax payments into solar investments for liquidity and savings
Your tax savings is going to give you all your down payment back. The rest is just profit coming in. It's like you're investing in real estate for free. He was a limited partner, so there was zero risk and he really liked you. This was one of our more risk adverse clients. All right, welcome to the show. I always love nerding out with experts in the world of money and finance. All right guys, welcome to the Mark Proberg CPA podcast. First off, for some of our subscribers, I apologize for being inactive in our episodes. It's just been wild how much transitions we're doing and how much work and travel I've been doing. It's been wild how much transitions we're doing and how much work and travel I've been doing. So welcome back.
Speaker 1:And I'm very excited to talk about this topic of solar and solar tax credits. And also, there are very, very few instances where you can reduce your costs in your business and reduce taxes at the same time, and this is why I'm very interested in this topic here. So with solar, we have an opportunity not only to reduce our energy costs but also reduce our taxes from tax credits and depreciation. Usually, when we talk about reducing our taxes, you're usually acquiring an asset, putting some money down. Usually some amount of money has to leave your pocket to purchase something or inquire some expenses before you can actually have the tax benefits of those items 401ks, even hiring your kids obviously you know the money stays in the family, but you're still paying the kids money. But with solar, we may have an opportunity to see those two benefits of cost reduction and tax reduction, and so I'm really excited about this here, and this is a concept that really applies to anyone who, either if you own real estate or if you even if you don't own any real estate or don't do any investing, but you're looking to reduce your taxes. So as far as looking at who this could potentially apply to, it is a very versatile topic here, but a lot of people don't really know very much about it. There's been a lot of changes in the tax code in the Inflation Reduction Act that impact it. So I would say is that this is going to be a missed opportunity for a lot of people here and you're probably not going to hear about it much unless you're really working with someone who's dedicated their firm to tax planning and uncovering all the available opportunities here. So this is a special treat for those of you who are other accountants listening to the podcast and looking for new ideas to give yourself an edge, and also for some of you guys just wondering what is possible here.
Speaker 1:So let's get into it. Let's get into some of what this is all about here. I'm just going to pull up my notes here. I don't have my home office, so things are a little bit slower than usual. I don't have my home office, so things are a little bit slower than usual. Okay so and a lot of this information, by the way, is relatively new because you had the Inflation Reduction Act that was, I believe that was 23,. In 23, which you know, it was supposed to have all these ideas for.
Speaker 1:You know you were expecting lots of changes coming our way with Joe Biden coming in office. Not a lot, but one of the things that kind of snuck into the Inflation Reduction Act was a lot of incentives for alternative energy, and that really sweetens the deal for this. So let's get into what this all means here. So you have something called an investment tax credit and essentially it is, for every is an incentive here, in this case to encourage that alternative energy. So for every dollar you spend on solar energy, you would expect to get a 30% tax credit. Now there are ways that you can sweeten this deal a little more. If the solar panels are constructed in the US, that 30% tax credit gets increased to 40%. And then and this is where it can get really exciting for some of you folks listening is, if you are serving a low income housing community, you get an extra 10%. So all of a sudden you can get 50%. Now we get to a point where, imagine, 50% of your purchase is paid for by the government and it can get a little bit sweeter too.
Speaker 1:Now it's very unusual that we would see all these features but you can get an additional 10% tax credit on the purchase of these solar panels if you were to invest in an energy community. So, an energy community there are several features, without going into all the specifics, but pretty much. If you were in a community, that where a certain percentage of its economy was derived from energy production, like coal or oil, or in an area where that was impacted by some of the adverse effects of the energy so let's say the oil wells were impacting the water supply, et cetera, et cetera that would give you an additional 10%. So you could potentially get up to 60% of the panels paid for in the form of tax credits. What we normally see is 30% to 40%. You're guaranteed the 30%. If it's US made which a lot of it is not all of it you're going to get to 40. And 40 is still really good. If you get to 60, congratulations. That's a home run hit.
Speaker 1:So let's talk about how we can use these credits and really what it looks like here. Well, you can use the credits on your primary residence and that's pretty cool, right? Let's say you live in a house and you buy a $30,000 solar panel and now you can have, let's say, a 40% tax credit. That's as though you get a $12,000 tax credit and that'll help you afford the panel. You get a $12,000 tax credit and that'll help you afford the panel.
Speaker 1:And with all these situations here and we're doing a workshop it got postponed, but we have a national solar distributor what the benefits are is not just the tax credits immediately, but you're also going to see the ability to take those tax credits. Sorry to have more of a fixed energy cost, and the cost of energy varies depending on the state, your accessibility to sun, but we've seen really just depending on where you're located. That will really impact how much you are going to save in energy in these situations here. So now you would think you know you'd see the greatest return on investment in a place like Arizona or Nevada, and you probably would see. But you'd also be surprised to find that these panels are going to create a lot of savings in states like Pennsylvania, because you're going to see higher costs of electricity in those states, and so you know each region is going to have an impact on how much you're actually going to save on energy here. So that's one way we can look at it.
Speaker 1:Now, another way that I like even more, though, is if we can get our solar panels on our business real estate. So if we have rentals or if we have a office so let's say we own where we work out of. So let's say we own our factory or warehouse. Let's say we own our office building, we can get a panel on that. We still get the same types of tax credits here, but what we also get here is depreciation and bonus depreciation. So this is where it starts getting really exciting for our clients here.
Speaker 1:So imagine is let's say we buy a $100,000 panel here we get a 40% tax tax credit and then we get bonus depreciation on top of that and we almost all the time these panels are financed so and we often see instances where you have zero money down on the financing of these panels. So imagine for a second here you're getting other people, you're using other people's money to help finance the initial purchase of this. Instead of paying your monthly electricity bill, you're just going to pay off the panel. Your costs, depending on where you are, are likely to remain the same or go down, and hopefully they go down, and so you're not really spending that much more money, or you're probably spending less money on energy. But at the same time you get access to an immediate tax credit.
Speaker 1:So in this example, $40,000 of a tax credit in the depreciation. So let's say we get our bonus depreciation here, which is calculated a little differently. So for whatever your depreciation amount is, your bonus depreciation is in year one. You lose 50, sorry, your tax credit is when you lose 50% of your basis. So back to this example. Here we have a $100,000 panel. Here we get a 40% tax credit. So the basis for depreciation is reduced by 50% of $40,000. So in this example we have $80,000 basis. Essentially, we're saying that this panel is worth $80,000 for depreciation. We get a 60% bonus and then let's say that gives us a $54,000 tax deduction.
Speaker 1:When you look at the tax deduction and the tax credits, this becomes a very, very attractive investment. And when we consider the fact it's not really costing us anything because we are financing it and in lieu of paying our energy bills, we're just paying off the panels so let's say that $54,000 at a 30% tax bracket roughly $15,000 of savings from the depreciation. We got another $40,000 tax credit. That's $55,000 in our pocket in the form of tax savings from purchasing these panels, and it's essentially as though we're not really paying for it. When we look at how much money is leaving our pocket to acquire the panels, paying for it, when we look at how much money is leaving our pocket to acquire the panels. So and you know we have a distributor and this is exclusive for our clients we do allow guest access for paid access if you're interested, but what our guest speaker is explaining to us is that you will have a. They'll finance it over like 25 years. So you're hardly going to feel, or you're probably not going to notice, the impact of what's the financial commitment to this because you're reducing your energy costs as you finance the purchase here.
Speaker 1:So this is really exciting stuff. So I think to myself we have these real estate investor clients here and let's say you can't find a good deal. Or let's say you don't have the cash or liquidity to buy more deals, or you're just sick and tired of being a landlord. Or let's just say you need another tax deduction and you're trying to avoid taxes here and you're looking for a way that you can save on taxes, but you don't have the cash on hand to create that tax savings. I really like this idea here because you can take your current rental properties, your current office properties and even your primary residence. You can install the solar panels and see immediate benefits from the combination of the tax credits. So this is really cool stuff here that we're excited to explore that not a lot of people are aware of, and partially because the legislation is relatively new. But let's say you don't have a lot of real estate, you don't have a lot of rentals.
Speaker 1:What else can we do here to take advantage of this legislation? So we do have providers that we collaborate with. There are several, and what's really fun for us is we can actually help you. Let's say you don't want to get into the real estate rental game and you can only put one panel on your house. That's not so exciting. But what we can do here is we can purchase panels and rent them out to other residences. So imagine you own a panel and someone else is paying you for the energy produced by the panel on their home. You own the panel, they pay you for the energy and the way we see several structures. Sometimes these are going to be commercial, like businesses paying for the energy, and other times these are going to be commercial businesses paying for the energy, and other times these are going to be personal residences and we can do this now at a much larger scale.
Speaker 1:So what we can do here is we have two ways that we've structured it with our clients. In one instance we would do a. In one instance here you would finance the purchase of the panels and you would essentially you would put maybe 50, 55% down. We've seen down payments as low as 10%, 40% but essentially, just like you would with a mortgage, you'd finance the purchase of the panels, put them on the properties and you would get the bonus depreciation because now you're renting out panels, so it's a business property and you get the tax credits and you don't need to worry about all these restrictions and challenges with. You, don't have to worry about the same restrictions and challenges that you have with real estate professional tax status, so you just have to worry about materially participating. You don't need rep status. Really, you just got to show 100 hours here in this example here and then in another instance.
Speaker 1:Here we do have an opportunity to take advantage of where we're still using leverage with a power purchase agreement, where with a power purchase agreement you would have the residences would prepay the energy of the panel and you would receive that revenue up front and that would allow you to finance the purchase of the panels. And this is just an alternative way. It feels very much like financing, except you have to recognize the revenue paid taxes on it. So it takes a lot of collaboration to use a cruel method of accounting. It really takes a lot of work on our end. But essentially in both instances we're using other people's money to help acquire lots and lots and lots and lots of panels that we rent out. We have a solar panel rental business and the tax incentives for the bonus, depreciation and the credits are really good. We had one client who purchased approximately $3 million of panels. It cost him about a third of that, so about a million dollars down, and the tax savings were $2 million when you combine the depreciation and the solar panels.
Speaker 1:So this is a strategy where we're working with our clients and in lieu of doing quarterly payments now, what we can do is we can just acquire more and more panels and whatever remains we can do as solar payments. So wouldn't you rather pay the? Let me ask you. So when you think about this and if you're strategic and you really have a collaborative relationship and this is really something for higher income earners but when you think about this, you got this devastating quarterly tax bill. Imagine, instead of paying hundreds of thousands of dollars to the IRS every quarter, we buy panels and we get tax credits to relieve us of those quarterly payments significantly here. So it's going to cost you less to purchase the panels than it is for you to pay the IRS.
Speaker 1:So each quarter, what we're doing is we're evaluating the profitability, potential tax liabilities and instead of just giving our money to the IRS that we'll never see again, we're purchasing the solar panels to get those tax credits to pay off the IRS. Some money is still going to remain off the IRS. Some money is still going to remain for the IRS. You can only offset 75% of your taxes, but it's a really awesome strategy to mitigate your taxes.
Speaker 1:And another thing we're thinking about here is with some of our high W-2 clients is, instead of having all this money just come out of your paycheck every year, you have no say and you got to wait for your refund, for our tax strategies to hit, and you got to wait until April or spring of the following year to get that money back in your refund. We can, actually we're collaborating with our clients to reduce the withholdings from their paychecks so they actually can take those funds and just purchase the panels at a discount, and it gives them more spending power and more liquidity to invest in other vehicles with that tax savings, such as oil and gas and real estate and infinite banking alternative investments, et cetera, et cetera. So we're freeing up the liquidity earlier by anticipating the tax savings of the solar panel purchases, buying those panels in advance, and now we have more cash and liquidity to grow and compound our wealth throughout the entire year instead of waiting for that refund, which is pretty much an adjustment in how much you should have paid in taxes to come when we follow your return in the prior year. So this is a very exciting way to unlock more capital, get more liquidity, to build wealth at a much faster rate here with even W-2s and business owners. So when we think about solar here, we also find for those of you who are renting out the panels, the majority of the benefit is going to be tax related. Who are renting out the panels, the majority of the benefit is going to be tax related. There is some cashflow and some opportunity, but the tax savings far eclipse it. So what I want you guys to think about here is at the very least, look into you know you may want to consider having the panel on your home.
Speaker 1:When it comes to renting the panels and starting the whole business and doing the projections, you really need a strong collaborative relationship with a tax advisor to make sure you're understanding the optimal amounts here, especially because that bonus depreciation will in tax credit. They're going to impact other strategies that you're you're doing at the same time and how far you can take them. You may find that this solar strategy takes away the impact from another strategy. So you really have to have that holistic picture and we talk about this a lot. We call this holistic planning, where we're looking at all the different strategies coming together all of your sources of income, your current income and tax liabilities now and those in the future. So you really want to have that holistic look at this to make sure you understand you can properly navigate this. If it is right for you, you understand what is the optimal amount, how much and when, who to work with, who can do this in a way that is protecting yourself, that is liable, that is minimizing any potential legal liabilities or scrutiny from the IRS here. But if you can do this and you think you're interested, obviously you can always contact us as well.
Speaker 1:So we're doing a lot of fun stuff with this solar stuff and we're going to try to dive deeper. We've set up some panel rental businesses and then we're really going to see how far can we take this with our real estate investor clients in 2025. And very excited to see how all the numbers play together. We're collaborating with experts and what I want you guys to think about. If you want to learn more about this, you can simply email us at info at. Actually, you can go to prosperlcpacom that's P-R-O-S-P-E-R-L-C-P-Acom slash apply and you can see more about our services and how this may fit. You can also jump in our open calls on Wednesdays. There's links there, lots of free resources for you to check out. So I hope you enjoyed this conversation on solar and potentially can be as enthusiastic as I am on all the potential tax savings and money savings that this can create. Stay tuned. We have a lot more good and consistent content coming your way, and thanks for listening.