What's up everybody? My name is Ryan, I'm a CPA, and today I want to talk about the solar panel tax credit. The federal tax credit. Now there's some states in the US that have their own state tax credits, I'm not going to go over that today. I'm just going to talk about the federal side of it. And also I'm only going to be talking about the residential solar tax credit because there's some different credits for businesses and commercial use. All right so in this video we're going to talk about what the solar panel tax credit is, how to calculate it, things to look out for, and and you know, just overall you know high level information for you. Hopefully you'll find it useful. So what is it? It's a tax credit that the IRS is, has created or you know, Congress has created to incentivize people to you know, lean more towards renewable energy. And you know, there's lots of debates between EVs and gas vehicles. But you know solar credit, there is definitely like some legitimacy there because you're just taking energy from the sun, you're using it to power your house, etc. etc. It's renewable and so the IRS wants to incentivize taxpayers to possibly install these on their roof to cut down on energy usage, and you know, coal burning, nuclear energy, all the other ways you get electricity, this is one way to kind of offset that. Now since tax credits are a reduction of tax liability that's, it's, the IRS sees it as an incentive to kind of offset the costs of the solar pipe, of the solar panels. Because as you know, solar panels can be pretty dang expensive right. So that's why they're incentivizing taxpayers with this tax credit. Which leads me to my next point which is the differences between a tax credit and a tax deduction. You know as a lay person I'm sure you hear those two terms get thrown around a lot you know. And tax deductions are you know, generally more common, there's more available deductions than there are credits, and that's just a fact. But what are the differences there? So let's start with a tax deduction. A tax deduction is in, on a personal sense, it's a way for you to reduce your taxable income. These include things like you know, your itemized deductions, so when you donate to charity, when you deduct your mortgage interest or property tax, these are called tax deductions. So they reduce your taxable income. And after your taxable income is reduced then you calculate the tax on your lowered taxable income all right. So as an example here let's say you had a $10,000 tax deduction from your mortgage interest deduction, so that reduces your net income by $10,000. And then let's pretend you're in the 20% marginal tax bracket (I'm just making this up), that means your net tax benefit federally is $10,000 times 20%, so $2,000. So the $10,000 deduction gets you a $2,000 tax benefit. Now where the credit beats the deduction is the credit doesn't reduce your taxable income, it reduces your tax liability. So let's say you had the same situation except you calculate your tax liability after you know, you calculate your AGI, your adjusted gross income. And let's say your tax liability is $10,000 that you have to pay to the IRS okay. A tax credit reduces your tax liability directly so if you had a $10,000 tax credit now your tax liability is zero so you don't owe anything to the IRS. So dollar for dollar tax credits are much more beneficial than tax deductions. Knowing that, let's get into you know, how to calculate the solar tax credit and the things we need to look out for. So solar tax credits are incentives for when you install solar PV systems. You've got to look at what PV is I just read it and I don't remember what it stands for. But just know that it's the, the panels that you install on your roof okay, and the the costs to install those panels, and relative related storage units can be used to calculate the tax credit. So the those qualifying expenses include the actual costs of the solar cells, the labor, and contract labor needed to actually install them on your roof. You know, the parts, the wiring, and even the storage unit to store energy is all added up as your total qualifying expense okay. So once you get to your total qualifying expense, you multiply that number by 30%, and that is your net solar tax credit amount. So if you had a $60,000 solar system all in, you know installation and everything, multiply that by 30%, your solar tax credit is $18,000 okay. And so which year, which tax year can you take this credit in? It's, it happens when in the year that your solar panels have completed installation and are up and running. That's when you can take, that's the tax year that you can take the credit. Also one thing to keep in mind, you can take the credit even if you don't pay any money down on it. You know, you can finance the entire thing and be making these small monthly payments and still take the full tax credit. Now I'm going to end this video with you know, common things to look out for, especially from solar panel salesmen. Because you know, just like car, some car salesmen, solar panel salesmen will say you know, whatever they need to to make sure you buy the solar panels. And a lot of times they give "tax advice" when they shouldn't, when they have no business giving tax advice. And they sometimes will over embellish on the benefits of the credit. Because to be honest, the tax credit will benefit many people but not everybody okay. And I'll tell you why in a second. But the solar people they don't know that, they just tell you you're going to get this tax benefit like a broad, painted with a broad brush, tell everybody they're going to get a tax benefit when that's simply not true. So watch out for solar panel guys and sales people over embellishing on credits, over embellishing on benefits. And always check with the tax professional after you talk to somebody, or are interested in buying solar panels to make sure it actually benefits you. I've heard of some solar companies even requiring that you sign over the credit to them and they'll you know, reduce, maybe they'll reduce the cost of of the installation or whatever. But I've heard that happening. I'm not sure how that's legal but it happens. Why are, why is the solar panel credit beneficial for some people and not others? Well this credit is considered a non-refundable credit, that means if you don't have any income, and you don't owe any taxes, and you don't have any tax liability, you don't actually get like a "refund". You know because you get a, because you have this big tax credit from buying a solar panel, if you don't have any income or tax liability that that credit will actually carry forward to the following year. You know, keep carrying forward until you have income and liability for it to offset. A non-refundable tax credit means if you don't have any tax liability, and you have a big tax credit, you don't just get cash from the IRS okay. You need to have some income and some liability. So as you can see here, if you're like somebody who's retired, who has very minimal income, or living on Social Security, and you don't have any taxable income, and you buy solar panels, sure you'll get the tax credit, but you won't see any benefit from it immediately. The only way you'll see a benefit from it is if you start maybe selling off some of your investments or getting a job where you have earned income and you have taxes to pay. Then you'll see the benefit. But if you're retired, or you don't have any any type of income, you will not see any immediate benefit. So definitely look out for that. All right, that's all I've got for today. Thanks so much. Hope you enjoyed it. Smash the like button. Hit the Subscribe button if you're new here, I'd greatly appreciate it, and I'll see you all next time. [Music]