By: Judd Baroff Blogger, Yellowlite, Inc.
The once a year drudgery is done. Tax day is behind us, and we are free from its boredom for another year. That is, unless you want to save money. Corporations save millions every year because they plan their purchases ahead of time based not only on what they need but on the tax code. The federal income tax code is complicated, but there are very quick and simple provisions that can save you thousands, allowing you to save the planet.
The Residential Renewable Energy Tax Credit is a credit used to offset money spent on certain alternative energy sources. Tax credits are wonderful. Unlike deductions (most people are familiar with taking a deduction for themselves or their children) which reduce the amount of income that is taxed, credits reduce your tax liability directly.
The difference isn’t just in emphasis; it’s hugely important and very helpful to the taxpayer. For example, Mike makes $100,000 and is taxed at 25%; he will pay $25,000 in taxes. If Mike gets to take a deduction of $10,000, this is great. The I.R.S. pretends that he actually made $90,000 and he ends up paying $22,500, saving himself $2,500. But, if that deduction had been a credit, the I.R.S. would have reduced his tax liability directly, and, instead of paying $22,500, he would have paid only $15,000. To get the value of this credit by a deduction, he would have needed a deduction of $40,000.
Huge savings is the point. But how do you get them?
First, you have to install the equipment into your residence, not a business. There are other tax credits and deductions for that, but not this one. Second, your residence must be within the United States, which typically includes its territories (for example, Puerto Rico would be fine). Third, the purchase has to be a “qualified” piece of equipment.
Qualified pieces of equipment break down into five types: solar electric systems, solar water heating systems, fuel cells, small wind energy systems, and geothermal heat pumps. Now, there are some qualifications; for example, for solar water heating expenditures, the piece of equipment must provide at least half of the energy in your home for water heating. And there are some maximum limits on the credits; for example, you cannot take more than $500 per half kilowatt of capacity in Fuel Cell purchases. But no maximum and no qualifications exist for most of the systems.
Once installed, you can take a credit of 30% of the total cost of the equipment. Total cost is not simply the cost of the equipment, but any labor cost associated with onsite assembly, preparation, and installation, including any piping or wiring required.
Let’s dive into the price again quickly. Let’s say that you purchase an 8 kWh solar energy system, which would save you about one third of your electric bill. Let’s also say that the system costs you $18,000. With the tax credit, the purchaser saves $6,000 on his tax bill. Assuming that you’re Mike, you would need an equivalent tax deduction of $24,000 to save that same cost – more than the cost of the unit to begin with.
So if you plan on buying the best solar panels, cheap solar panels, the most efficient solar panels, even sunpower solar panels for your home solar system, know that solar panels cost less than ever. Solar panels in Ohio, solar panels Columbus Ohio, solar panels Cincinnati Ohio, even solar panels Ontario, even solar panels for your home, your solar panel roof is ready to be installed. Check out our solar panel calculator, even if you want to purchase cheap solar panels in Ohio. YellowLite solar a solar installation company in Ohio as a solar installer Ohio.So plan out your alternative energy purchases, make sure they qualify for the Residential Renewable Energy Tax Credit. It’s a quick and dirty way to save you thousands of dollars on your 2014 tax bill. Happy saving!