HERO Loan Questions

[josh4trunks]

Sorry this is a little off topic from Solar, but this is the only forum I saw discussion of HERO loans.
Here's my situation, today I agreed to have my rat infested attic worked on, and my windows / sliding door replaced. I ended up financing with a HERO PACE (Property Assessed Clean Energy) program, after being told the entire amount (principal & interest) is tax deductible.

Reading what I could on the tax deduction I couldn't get a straight answer whether the principal really is deductible. Everyone, including the HERO people say please consult with your tax professional. But... I file taxes myself, so I want to understand this stuff. I doubt paying a tax guy to look into this will give me any more information then reading IRS Publication 17, Section 22. I have called the IRS on other complicated matters before, and they usually just read the publication word-for-word so I doubt I'll get additional insight from calling them.

Is everyone here that is using HERO just deducting the entire thing? This makes me feel like I can deduct everything because I am making no additions to the home but I'm not 100% sure. My rational is I'm replacing rat infested, and no longer working insulation, ductwork with holes from rats, and windows that are opaque because their seal has failed.
"Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits."

[sensij]

Solar is a bit different than your situation, since there isn't really a convincing case that installing solar panels falls under the maintenance or repair categories. Solar installs are almost definitely just interest only deductions. If I was in your shoes, I would feel confident deducting the principal if the work was truly repair work... restoring the original form and function of the rat damaged items. If any of it is being upgraded (more/better insulation, better windows, etc), I would probably try to figure out the difference in cost between the true repair and my upgrades and base my tax filing on that.

I am not a tax professional, seek qualified help, etc, etc.

https://dqjghx1vau0u.cloudfront.net/uploads/assets/33304/original.pdf?1455146519

[J.P.M.]

I'd bite the bullet and get some advice from a licensed CPA who knows something about the subject. You get what you pay for (or less).

[josh4trunks]

Thanks, I'll see if I can find a CPA who has experience with it.
My savings is potential ~$2500 so its a bug deal to get this right.

[J.P.M.]

Thanks, I'll see if I can find a CPA who has experience with it.
My savings is potential ~$2500 so its a bug deal to get this right.

Not endorsing the idea at all, but I suspect some folks in similar situations take the deduction, and take their chances, and then take their checkbook and tax accountant to the audit, if it come to that.

Fortune favors the bold and slaughters the foolish and ignorant. Just sayin'.

[josh4trunks]

Not endorsing the idea at all, but I suspect some folks in similar situations take the deduction, and take their chances, and then take their checkbook and tax accountant to the audit, if it come to that.

Fortune favors the bold and slaughters the foolish and ignorant. Just sayin'.

One of my thoughts too. Gonna take some pics of the rat/window damage just in case. I if needed get a statement of the reason for the work from the contractor.

[cebury]

You've got the answers already above, but I did quite a bit of research also and concur. Your actions in the last post will help also.
As those loans are not super common, it is reasonable to assume (and I confirmed t with our CPA) most everyone takes the entire amount listed from your county tax form as a deduction. Esp if it's not a large percentage increase of the prior taxable assessment. With solar being a relatively large amount, and not a repair but improvement, IMO folks are asking for trouble in that area.

[cebury]

The Irs has come out with official guidance on the matter above: whether principle payments made via your county real estate taxes for PACE type loans are deductible or not. They are NOT. Only the interest portion of your payment, which is not itemized on your tax assessment, is possibly eligible under the home mortgage interest deduction category; neither principle nor interest is not deductible within the tax assessment category. CA FTB has also just released their guidelines in following with the same instruction as federal. Overall this means you or your CPA will need to keep a loan amortization schedule for the PACE loans I order to determine the portion of your tax assessment is interest each tax filing year.

In October 2015 I spoke with both banks in CA that offer Hero/Pace loans and found, along with heavy sales pressure, they suggest with a wink wink, that you will get the deduction because it's just one more line item on your taxes, therefore it's a deductible tax. At the end, they quickly suggest "but we aren't CPAs."

https://www.irs.gov/taxtopics/tc503.html

[huge]

Thanks for the update. There was a company that tried to convince me that doing the above will save me thousands more than just buying the system. He was obviously wrong

[cebury]

No problem. Glad you didnt get caught with them. You can only save money if your credit is poor, you can't get a home equity or other loan, you are in a high income tax bracket, and have lots of equity in your house. Those are very rare customer profiles IMO.

I posted details here: https://www.solarpaneltalk.com/forum...t-worth-it-imo

Their closing fees are also tremendous.

[J.P.M.]

No problem. Glad you didnt get caught with them. You can only save money if your credit is poor, you can't get a home equity or other loan, you are in a high income tax bracket, and have lots of equity in your house. Those are very rare customer profiles IMO.

I posted details here: https://www.solarpaneltalk.com/forum...t-worth-it-imo

Their closing fees are also tremendous.

Thanx Cebury. I'd suggest all potential users also note the last sentence: "Their closing fees are also tremendous." Caveat emptor.