Solar Projects: A Tax Strategy For High-Income Earners
By Charles Schaffer
If you’re in the 37% federal income tax bracket, you know how much of your annual income is consumed by taxes.
Since no one likes paying too high a tax bill, being the sole, direct investor in a solar project is a great way to help the environment, defer a portion of your tax liability, and enjoy substantial tax savings.
More than ever, we need to increase investments in renewable energy; the sun is the best natural energy source.
So, let’s talk about why investing in solar energy is an excellent strategy for high-income earners to realize tax benefits and make an impactful investment by replacing traditional sources of electricity with clean, renewable solar energy.
Benefits for tax-exempt organizations
In 2021 and earlier, many organizations we worked with were tax-exempt and could not take advantage of the federal Investment Tax Credit (ITC) for a solar project. A nonprofit could realize tax savings by involving a third-party investor in their solar project.
The Inflation Reduction Act of 2022 lets nonprofits and schools file tax returns and receive a 30% ITC as a direct payment. However, many tax-exempt organizations decide not to file a tax return for this purpose. These entities can still benefit from third-party financing.
SDC is proud to partner with contractors that install clean, cost-efficient, green energy.
For example, SDC helped bring over 16 kW of solar-generated electricity to Skyline Church of Oakland.
Another example is the Winsor School project, a 331 panel, 149 149kW-DC system.
As an investor, you can feel good that investing in nonprofit solar projects will not only save you tax dollars. Your participation will have a bottom-line impact on a nonprofit's operating budget for the next 25 years.
Since the solar customer pre-pays 20 years of energy and that prepayment is used to pay construction milestone payments, an investor doesn't take on development, construction, or credit risks.
Investor federal & state tax benefits
The most significant financial component of personal taxes is federal taxes. However, investing in solar energy may make you eligible for additional tax benefits.
Investment Tax Credit (ITC)
The U.S. Solar Investment Tax Credit (ITC), originally introduced as part of the Energy Policy Act of 2005, was scheduled to decrease from 26% in 2022 to 22% in 2023. It would have then stepped down to 10% for commercial projects in 2024 and beyond.
However, the energy security provisions of the Inflation Reduction Act of 2022, signed into law on August 16, 2022, raised the ITC for commercial and residential solar to 30% in 2023.
The tax credit will remain at the 30% level for ten years. After that, the percentage will decrease to 26% in 2033 and 22% in 2034.
This new law substantially increases the time horizon for solar investment opportunities. Since solar energy represents less than 4% of annual energy production in the United States, there is much room for growth.
Depreciation
Depreciation measures how long a business asset will remain "useful." This measure will determine how many years you can deduct the cost of that asset from your taxable income.
The government allows tax benefits based on how long a business asset will remain in use for an organization. In this case, that business asset would be your solar investment.
This benefit from solar investing includes MACRS depreciation at the federal level and 5-year depreciation in taxable states. The latter is particularly beneficial to investors who reside in California.
There is pending IRS guidance on additional bonus depreciation.
Passive income
Many tax benefit strategies require close involvement and time. However, solar investing is an investment in a tax benefit that allows you tax credits without needing to oversee an energy project.
With SDC Energy, you can invest your deferred taxes in other areas of solar energy, such as panel manufacturing.
By investing in solar projects, you’ll be helping the world move into cleaner energy and setting up a tax strategy that can save you tens of thousands of dollars in taxes.
SDC has been working with private investors for more than 15 years. In that time, we’ve helped thousands of people reap the rewards of tax benefits from investing in solar energy.
To learn how you can benefit, check out the YouTube interview below with Richard C. Wilson, in which I explain how solar investing will save you money on your taxes.
Please set a time to meet with me if you are a high-income earner with a tax liability of $1,000,000 or more. I will walk you through a detailed cash flow model that shows six-figure savings. We have active solar projects right now.
Charles Schaffer
President and Founder, SDC Capital Ventures
Charles has founded and operated several development companies over his 35+ year history to pursue his passion for Alternative Investing where he believes outsized returns can be achieved without a corresponding increase in risk. Under Charles' leadership, SDC has developed and financed over $80 million of commercial real estate and renewable energy projects.
