Everyone hates paying them.
Everyone hates navigating the endless tangle of rules and exceptions, dreading that final number where you will have to send the government even more of your hard-earned dollars. Despite being well-prepared with receipts, Excel spreadsheets and forms, I’ve been known to drag my feet until the last minute.
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However, even when battling the taxman, I think we can all agree that you feel a thrill when you can claim a spectacular credit.
I’ve got a tax credit that could substantially lower your tax bill … as well as another bill that’s just as hard to avoid.
Trim Your Tax Bill
While Congress battles out the next adjustments to the American tax code, one great tax break remains: a 30% federal income tax credit for any expenditures to buy and install qualifying energy-saving solar equipment for your home.
Not that long ago, people were quick to shrug off the idea of putting solar panels on their roof. Too many thought they were just a silly fad and not economical at all.
In 2016, solar power had been installed on more than 1 million homes and businesses. That’s more than 850 megawatts of deployment, creating enough power for 130,000 American households. And that number continues to grow at an exponential rate as the cost of installing the panels has dropped and the efficiency of the panels has risen.
Today, solar panels have real benefits; depending on where you live and the size of your solar panel system, they can potentially generate 100% of your home’s energy needs.
Many homes have 4kW to 8kW systems installed, depending on the average hours of sunlight their rooftop receives per day. The average cost is currently around $7 to $9 per watt, so a 5kW system would cost between $35,000 and $45,000 to install.
That’s a lot of money.
However, you can claim 30% of the cost to purchase and install the solar power equipment … and a $13,500 credit on your taxes will look really nice. There’s no income limit on who can claim this credit.
Currently, the 30% credit is in place through 2019 and is then scheduled to reduce to 26% in 2020 and 22% in 2021. In 2022, the credit is slated to disappear.
Americans can use this credit to cut both their regular federal income tax bill and any alternative minimum tax that’s owed.
If you plan to use this tax credit, it’s critical that you keep proof of what you spend, including any preparation you need to do to the site prior to installation. You will also need proof that the installation was completed.
Cut Out the Power Company
Maybe you’re not completely sold on the idea of a 30% tax credit for solar power when you’ve got such a big charge coming from the equipment and installation.
You’ve got to remember that you’re also trimming your energy bill each month because that collection of panels on your roof is providing power that you’re not buying off the electric company.
What’s even better is that if you’re generating enough energy from your solar panels, you might be able to actually sell any excess power back to the electric company, earning you a credit on your bill at the end of the month.
Many electric companies can set up your home with a special device that allows what experts call “net metering.”
All that means is when your solar-powered home is generating more power than it’s using, the special meter “sells” the excess power back to the utility company. When your home is consuming more electricity than it’s generating (such as when you have the air conditioning on), the meter allows sufficient power from the main grid to flow back into your home.
That’s why they call it net metering — your home isn’t just consuming power; it’s generating its own electricity. When it’s sold by the kilowatt-hour back to the power company, the money is credited to your monthly power bill, lowering it by the specified amount.
Net metering is a great solution since you’re not completely disconnected from the grid, and you’ll always have reliable electricity regardless of the conditions. However, make sure you check carefully with your local power provider. In some areas of the country, net metering is increasingly widespread, and it’s so popular that some local utilities are trying to cut back on the credits to homeowners for their solar-generated contributions to the power grid.
Is It Right for You?
In summary, with the installation of solar panels, you get to slash your tax bill and cut your monthly electric bill. There’s also the environmental bonus of “going green” that doesn’t hurt either.
If you’re interested in learning whether installing solar panels on your home is a good money-saving solution, you can check out Google’s Project Sunroof — a system that calculates your home’s potential for generating solar power. It creates a 3-D model of your roof, and — using Google’s satellite imagery, mapping systems and Internet weather data — estimates how much sunlight will reach your solar roof panels (along with how much money you could save over 20 years).
And don’t miss out on other great cost-cutting and tax tips from Ted Bauman in his Bauman Letter.
Sr. Managing Editor, Sovereign Investor Daily
P.S. This tax credit is just one great way to keep more of your money in your pocket, but there are plenty of people out there looking for a way to get a bigger chunk of your hard-earned dollars. Learn key ways to protect your assets with Ted and Bob Bauman’s Lawyer-Proof Your Life. For full details, click here.