Does Solar Pay for Itself? Is it worth it?

[Farm Boy]

There is another way to figure your expense which I seem to think makes more sense as well as pays for it's self quicker with benefits long after.
If you own a farm or business forget the 30% pay back and depreciate. Any thing you buy for the farm or use for the business can be depreciated over time. A 24000. plus system used for the business can help in taxes normally owed or paid for in approx., 6 yrs. You need to spend money in a business to retain assets in order to write them off over time of taxes you would pay otherwise for income in later years. Talk to your CPA.

 

[Zwy]

There is another way to figure your expense which I seem to think makes more sense as well as pays for it's self quicker with benefits long after.
If you own a farm or business forget the 30% pay back and depreciate. Any thing you buy for the farm or use for the business can be depreciated over time. A 24000. plus system used for the business can help in taxes normally owed or paid for in approx., 6 yrs. You need to spend money in a business to retain assets in order to write them off over time of taxes you would pay otherwise for income in later years. Talk to your CPA.

Actually it's a 15% tax credit in the first year plus the bonus is depreciation split over 5 years under MACRS.

$50,000 system is $7500 tax credit the first year plus $8500 for depreciation for that year. Then $8500/per year after. This is a great incentive for businesses and farmers to adopt solar. The government wants solar installed.

I mentioned it here: https://diysolarforum.com/threads/advice-on-battery-backup-for-power-outages.60405/post-746363

Another post in that thread after I mentioned more advantages. I'm still on the fence whether I install solar on the shop. I assume I won't retire in under 5 years but getting a good return after that may be up in the air. If anything, it will be load reduction and emergency backup power as if I do retire I won't need the large system for daily operation.

 

[Farm Boy]

Biggest issue with depreciating assets is if you go and sell them. Then you pay sales tax on what you sold it for but still no big deal.

 

[Zwy]

Biggest issue with depreciating assets is if you go and sell them. Then you pay sales tax on what you sold it for but still no big deal.

Capital gains tax if you sell a fully depreciated item. I buy a piece of equipment for $1000, expense it as 179 expense in first year or depreciate it over several. It is fully written off and I sell it for $500. The $500 is taxable capital gain.

Always remember all items have salvage value. In an audit, they look closely to see if you sold items and never reported the capital gain.

Now, it you pay $1000 for an item, decide to depreciate it out over 5 years and take $200 write off in the first year, you have a basis left of $800. If you sold it for $800 in the second year, the sale price equals the basis and you don't have a capital gain. No tax is due.

 

[EastTexCowboy]

Capital gains tax if you sell a fully depreciated item. I buy a piece of equipment for $1000, expense it as 179 expense in first year or depreciate it over several. It is fully written off and I sell it for $500. The $500 is taxable capital gain.

Always remember all items have salvage value. In an audit, they look closely to see if you sold items and never reported the capital gain.

Now, it you pay $1000 for an item, decide to depreciate it out over 5 years and take $200 write off in the first year, you have a basis left of $800. If you sold it for $800 in the second year, the sale price equals the basis and you don't have a capital gain. No tax is due.

All exactly correct. One other thing to remember is if you have deductions which are denied during an audit you will likely only owe the tax and a penalty. But if you have unreported income, whether earned or capitals gains, they may consider that tax evasion. Penalty is one thing, prison is another. My CPA and I have had the same conversation at tax time for the past 30 something years. I tell him my one and only rule - no matter how the tax return comes out, do NOT let me go to jail! ?

I was audited a few years ago and he beat them like a drum, as he should have. Actually been audited twice and both times the result was a no-change audit. Keeping good records has its benefits.

 

[EastTexCowboy]

There is another way to figure your expense which I seem to think makes more sense as well as pays for it's self quicker with benefits long after.
If you own a farm or business forget the 30% pay back and depreciate. Any thing you buy for the farm or use for the business can be depreciated over time. A 24000. plus system used for the business can help in taxes normally owed or paid for in approx., 6 yrs. You need to spend money in a business to retain assets in order to write them off over time of taxes you would pay otherwise for income in later years. Talk to your CPA.

That's only a better deal if you're in the 30% tax bracket or above.

 

[Zwy]

That's only a better deal if you're in the 30% tax bracket or above.

Yes and no. The reason the business/farm credit being 1/2 of the 30% is for this reason.

Take the 15% and depreciate the rest. I doubt I'd worry about selling it down the road and incurring capital gains.

I doubt I'll even use up all of the 30% tax credit this year for my house system and will carry some over. My wife had a cancerous kidney removed in the fall, my HSA gives a nice deduction alone and I of course had bought some "things" as she calls them that will be 179'ed or depreciated. Tax man is working on it.

 

[EastTexCowboy]

Yes and no. The reason the business/farm credit being 1/2 of the 30% is for this reason.

Take the 15% and depreciate the rest. I doubt I'd worry about selling it down the road and incurring capital gains.

I doubt I'll even use up all of the 30% tax credit this year for my house system and will carry some over. My wife had a cancerous kidney removed in the fall, my HSA gives a nice deduction alone and I of course had bought some "things" as she calls them that will be 179'ed or depreciated. Tax man is working on it.

I've 179'ed SO much stuff over the years myself. Then a couple years before I retired I started buying more equipment for the ranch, even though we weren't producing much with it at that point. But I was over that 30% bracket and writing all that stuff off saved me a ton. Now I'm retired and income is not the same, but I'm still going to write it all off and just carry forward whatever is left. The ranch makes enough they can't call it a hobby, which is about all you can expect unless you're running a truly big operation. Since I'm over 65 I can't do the HSA contribution anymore, which sucks. That is the best deal going. Tax deduction when you set it aside then it earns tax free income. That and ROTH are the way to go if you can swing it.

 

[Farm Boy]

A lot of good info from you guys here on the subject. I leave it up to my CPA consulting firm to figure how and where it go's in place. That in it's self is also tax deductible.

 

[EPicTony]

Yes and no. The reason the business/farm credit being 1/2 of the 30% is for this reason.

Take the 15% and depreciate the rest. I doubt I'd worry about selling it down the road and incurring capital gains.

I doubt I'll even use up all of the 30% tax credit this year for my house system and will carry some over. My wife had a cancerous kidney removed in the fall, my HSA gives a nice deduction alone and I of course had bought some "things" as she calls them that will be 179'ed or depreciated. Tax man is working on it.

What happens if you take the 15% and depreciate, then 5 years from now you sell the house (and all the solar as part of the house package) ?
Capital gains or just part of the house ??

 

[EastTexCowboy]

What happens if you take the 15% and depreciate, then 5 years from now you sell the house (and all the solar as part of the house package) ?
Capital gains or just part of the house ??

I'm not a CPA but I believe in this case they're going to look at capital gains on the difference between your basis and selling price. The improvement would be added to your basis but any depreciation will be recaptured which will reduce your basis. So essentially, capital gains tax. Where this might get dicey is if you have owned the house more than two years and it's your primary residence. In most cases that's going to exclude you from capital gains tax. This would be an interesting question to run by a CPA, but probably not right now. They're all a little swamped at the moment.

 

[Zwy]

What happens if you take the 15% and depreciate, then 5 years from now you sell the house (and all the solar as part of the house package) ?
Capital gains or just part of the house ??

Capital gains tax would apply if it is not your primary residence and you ran a business on the property, hence why you were allowed to depreciate it.

If you live there as primary residence and the solar is feeding your house and you are running a business on the property that has a solar system that feeds both, you may have to come up with a way to show the IRS what usage went to the residence and what usage went to the business. That will require records and you still might get dinged on an audit.

In my case, I live and work on the same property, house system is separate from my shop and I will not depreciate the system.

 

[Zwy]

A lot of good info from you guys here on the subject. I leave it up to my CPA consulting firm to figure how and where it go's in place. That in it's self is also tax deductible.

I pretty much know how things will go long before it goes to the tax preparer. 36 years in business and I make certain I'm aware of any effect a purchase or changes in tax law will have on taxes. I built a new shop in my early 40's. The time was right, I have to write the shop off over 29.5 years. So to get the most from the tax shelter the depreciation offered, it needed to get done. I built another large business building on the property too, sure helps as my income is much higher now than it was 36 years ago starting out.

 

[EPicTony]

Capital gains tax would apply if it is not your primary residence and you ran a business on the property, hence why you were allowed to depreciate it.

If you live there as primary residence and the solar is feeding your house and you are running a business on the property that has a solar system that feeds both, you may have to come up with a way to show the IRS what usage went to the residence and what usage went to the business. That will require records and you still might get dinged on an audit.

In my case, I live and work on the same property, house system is separate from my shop and I will not depreciate the system.

I'm in a similar situation as you. I'm just going to take the 30% tax credit and call it day. Thanks for the tip.

 

[HarryN]

I am starting to study a project.

The customer wants me to own the system and rent it to them for a variety of reasons that sort of make sense.

If it an off grid mobile system. Nominal value of the total project ~ $15K.

I don't really have the income to take the tax benefits but looking at options in case I could use it somehow via the business.

Any inputs on what part of the tax code I should be looking at and even "concepts" of how this might be structured usefully?

Thanks

 

[wattmatters]

If it an off grid mobile system.

So they can just bugger off at any time leaving you high and dry?

 

[Warpspeed]

They can also abuse the crap out of it.
And then its all your problem when it stops working and finally dies.

 

[Zwy]

I am starting to study a project.

The customer wants me to own the system and rent it to them for a variety of reasons that sort of make sense.

If it an off grid mobile system. Nominal value of the total project ~ $15K.

I don't really have the income to take the tax benefits but looking at options in case I could use it somehow via the business.

Any inputs on what part of the tax code I should be looking at and even "concepts" of how this might be structured usefully?

Thanks

Run Forest Run.

Back in the day the DC Solar solar generator trailers were setup this way. It was a scam, the "manufacturers" sold buyers on the investment tax credit breaks allowed at the time. The IRS went after those who invested and used the tax breaks. https://diysolarforum.com/threads/dc-solar-trailer-ponzi-scheme-the-backgound-story.62658/ I'm pretty certain if tried today the IRS would audit an investment tax credit deduction immediately.

Have fun tracking down the mobile system if you aren't related to the customer and I'd still be leery. Just consider it a $15K donation to whomever the person is.

 

[EastTexCowboy]

I am starting to study a project.

The customer wants me to own the system and rent it to them for a variety of reasons that sort of make sense.

If it an off grid mobile system. Nominal value of the total project ~ $15K.

I don't really have the income to take the tax benefits but looking at options in case I could use it somehow via the business.

Any inputs on what part of the tax code I should be looking at and even "concepts" of how this might be structured usefully?

Thanks

I would think the insurance would offset any profit from a single install, even if you figured out a way around the tax incentive. Without insurance if it burns down you're going to have a lot of liability. I wouldn't touch it with a 10 ft pole.

 

[timselectric]

Not a deal that would interest me, in the least.