Dear [CLIENT NAME]:
More and more people each year are installing solar panels on their home, businesses, and rental properties, and the energy cost savings can be substantial.
There can also be substantial tax savings as you may get a tax credit of up to 30% of the cost of buying and installing the panels. The Inflation Reduction Act of 2022 reinstated the 30% credit retroactive to solar energy systems installed after December 31, 2021, through December 31, 2034, but it also adds new limitations.
Under the Inflation Reduction Act, the following types of property are eligible for the Residential Clean Energy Credit: solar electric, solar water heating, fuel cell, small wind energy, geothermal heat pumps, biomass fuel property, and qualifying battery storage (home batteries).
If you are considering installing solar panels (or other qualifying properties), beware that there are many aggressive salespeople who are misrepresenting the tax savings that you may be entitled to. Note the following:
- Leasing solar panels may be the most economical choice for you; however, tax credits are only available if you purchase the panels;
- Roof replacement and repair costs are typically not available for solar credits;
- If you finance the purchase of the solar panels through any of the programs that allow you to make your finance payments through your property taxes, that portion of your property taxes is not deductible as property tax;
- If you install solar panels on your business or rental property, then you may be required to pay back some or all of the tax credits if you sell the property or convert it to personal use within five years of installing the solar panels; and
- If you are an owner of a partnership, LLC, or S corporation that installs solar panels on its property, then you may be able to claim the tax credits on your personal income tax return, but special rules may limit your credit.
There are other tax and nontax considerations regarding whether you should lease or buy your panels or whether you should go with solar at all. Please contact us to discuss.
Sincerely,
Your tax professional
