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How can I use the 30% federal tax credit ?

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  • How can I use the 30% federal tax credit ?

    How can I use the 30% federal tax credit if I don't owe any income tax?

    My Wife and I are retired and basically only have SS income to report. Our Schedule A deductions are higher than the standard but even with the standard deduction we end up with $0 tax due. We haven't paid taxes in years so how can I use the solar tax credit?

    One idea I have is that if I withdraw money from the IRA, or even move it into a Roth IRA, that will count as additional income and will generate a tax due - can I then use the solar tax credit to offset that tax due and get use of the money "tax free"? I also assume the 30% would be equal to the tax due so the total amount I could withdraw would be much larger based on my tax bracket.

    Any other known ways? >>> I know you guys are not tax lawyers or CPA's so I'll take your comments with a grain of salt but IF this is a viable way and has been done before then I may pay to get a pro's advice but not until I am pretty sure of the answer first. <<<

  • #2
    Originally posted by Syberdog View Post
    How can I use the 30% federal tax credit if I don't owe any income tax?
    Talk to an accountant. You can sell your tax credit.

    4400w, Midnite Classic 150 charge-controller.


    • #3
      Your approach seems to be sound, the issue is you want to make sure that the additional income doesnt somehow cause you to have to pay taxes on your SS. A CPA could run the numbers pretty quick.


      • #4
        Originally posted by organic farmer View Post

        Talk to an accountant.
        Good advice. I agree

        Originally posted by organic farmer View Post
        You can sell your tax credit.
        I do not believe that is true.

        I would be very interested to see anything to support that - it would be worth thousands of dollars to my church.


        • #5
          The solar tax credit is not a marketable security but it can be made into one. Enter the special purpose entity. I have couple of projects with non profit health care facilities that will involve big solar arrays. They cant get the credit but there are plenty of profit making entities that can use the credit and will partner with the non profit. If a church didn't take this into account prior to installing solar then they need someone else to supply them financial guidance as their current guidance potentially cost them money in the long run as this needs to be set up before it went in.

          I am an engineer and dont set these up but lets see if I can describe a possible special purpose entity. First thing we do is look at the revenue for the entity, The non profit buys power from somebody and will in the long run, The church is probably going to be around for the long term and their power demand is probably pretty reliable. An accountant can look at that cash stream for the next 20 years and do net present value calculations which converts the yearly electric bills over the course of the project into a equivalent in today's dollars. Now that same accountant for a profit making company looks at what it will cost to install the system. They in theory install lots of systems so their unit cost to install solar is less than a small user. They can take advantage of special depreciation for solar to reduce their NPV. They can make a profit so they can get 30% tax credit. There can be other revenues like Feed in Tariffs or SRECS that they may be able to take advantage of that a non profit may not. They now know the cost and revenue associated with the system and then they pick what sort of profit they want to make. Using that math, they then can approach the church to sign a long term contract where they can offer the church a discount on power. The price of power should be less to the church then their own cost to produce it as the profit making entity can apply the federal rebate to the price, although a portion of that will get eaten up by the companies profit. The reason for a special purpose entity is that the company that sets up the deal may not want a long term stream of income payments from a non profit, so what they do is they sell the contract to someone who does like a bank. There is an inherent risk with sticking with one particular revenue stream, what if the non profit burns down, loses membership or merges with another non profit. The best approach is mix a bunch of these projects into a pool and sell shares of the pool so that the risk is spread. Using this method that cash flow starts looking like bond payments and the financial world is always looking for low risk long term investments with steady cash flow. Somewhere along the way a servicing company is hired to collect payments. Solar City was playing this game, they were signing deals right and left, then packaging the deal into pools and then selling the pools to a separate company owned by the same stock holders.

          The hassle with this process is its not clear, the profit making company does this for a living and they are not necessarily looking out for the best deal for the non profit. Both parties need to go in understanding the details but frequently the non profit just trusts the person on the other side of the table (who is most likely on commission). Note if you see parallels with the mortgage crisis from a few years ago, there is.

          Last edited by peakbagger; 02-04-2018, 03:04 PM.


          • #6
            Originally posted by peakbagger View Post
            If a church didn't take this into account prior to installing solar then they need someone else to supply them financial guidance as their current guidance potentially cost them money in the long run as this needs to be set up before it went in.
            Most church's "financial guidance" is a few church members/volunteers who handle it as best they can.

            I was doing some of the research for my church and I only encountered one company that would do what I believe you're suggesting.
            Almost none of the 30% actually came out as savings for the church. It looked like a lot more paperwork and net benefit of $2k on a >$150k project.


            • #7
              For the OP:

              This *may* be a case where leasing the system is a good choice.
              You have to look at that choice *very* carefully.

              The reason it may work is because you don't get the 30% credit, and I'm assuming that you are likely to stay in your home for >7 years (which likely avoids some of the issues with having a lease and trying to sell the house)


              • #8
                I installed the system myself this past year and paid cash for all components so there is no other party involved.
                I only found out I had to defer any credit till next year when I started doing my taxes and had no liability to take it against.
                (Have done my own taxes for 30+ years even when I owned my own business).
                A couple years ago I had 15k in medical expense that I did withdraw 15k from my IRA and offset it with the medical deduction. My only issue that time was that Arizona considered it income before my deduction thus I didn't qualify for the property tax rebate I usually get.
                I think I will read the instructions and run thru the forms as a dummy what-if to see if the stars align for me.


                • #9
                  You were right to look at converting your regular IRA to a Roth. The beauty of this method is that you can convert just enough to create taxes offset by the solar credit.

                  If you don't want to convert all in the first year, say for investment gain purposes, you have the five year rollover to play with. In my case I did it in two years.


                  • #10
                    Yes that 5 year rule is tricky to work with.
                    In addition to the 30% Federal, I can claim up to $1000 Arizona state credit - I don't think Az counts the IRA to Roth rollover as income (will check) so I pretty much have to take some cash to get the AZ credit against income. Also Az doesn't tax SS income at all.
                    If this strategy is workable the trick is to figure how much cash to take out and how much to roll to the Roth.

                    Well I did a QUICK run thru the forms & Instructions and made a dummy return with the Block program. It appears I can withdraw 18500 from my IRA (I didn't figure a Roth rollover yet) and I will owe $0 in fed taxes and still have $2450 solar credit to use next year (actually several years as I only used 600 of my credit to get 18500 back)... Also Az uses my federal AGI to start so if the feds count the rollover as income so will AZ but taking the cash, it looks like I will still owe Az $0 and will have to roll the entire $1000 credit forward to next year since my Sch.A is more than enough to cancel any bill...

                    now I'll get more pro review

                    ETA2- Well that won't work... according to IRS p590 distributions are considered in the year they are received so dec 31 is past and if I take cash it will be against next years taxes. Conversion to Roth seems to be an exception but I will read those rules tomorrow... with fingers crossed.
                    Last edited by Syberdog; 02-04-2018, 11:10 PM.


                    • #11
                      Sounds like you are on the right track. I dont think a lot of folks have figured out that an IRA conversion is "income" on demand. They are far better off to convert IRAs to Roths sooner then later as given that many folks dont have defined benefit pension plans, the dreaded Required Minimum Distribution is going to force them to do so down the road anyhow. Might as well do it sooner and then get the growth deferred from taxes as soon as possible

                      That is the big plus for using software, unless you have complex finances just try different "what ifs".


                      • #12
                        Well, after more research and talking with a IRA guy it looks l can't do it for 2017- should have moved the $ in Dec...
                        I will have to wait until I do 2018 taxes but I can move almost any amount from my IRA to my Roth to use up the credit.
                        Based on this years data (if 18 is very similar... I should be able to move between 29 and 30k and still avoid Fed taxes.
                        It will mess with my AZ income but still may be worth it to do all at one time.
                        I would say it's not to bad a deal overall, considering I shelter 3x the system cost in future years.

                        Thanks for everyones help


                        • #13
                          Especially if you have some years before retirement, the Roth conversion has another advantage. The INCOME from it is not taxable. With the conventional, all withdrawals, deposits and income, are taxable including (which you want) that which goes into your Roth.