Most Confusing Parts Of The Income Tax Code, Part 7: Green Tax Credits

Many provisions of the Internal Revenue Code are complicated. Proper interpretation of the rules and regulations contained in these provisions requires the assistance of an experienced and knowledgeable tax professional. This is another installment of our series about the most confusing provisions of the Internal Revenue Code. It addresses green or energy tax credits, such as the Solar Investment Tax Credit. A tax credit is a dollar-for-dollar reduction of the income taxes that an individual or business taxpayer claiming the credit would pay the federal government.

Why Are They Confusing?

  • Rule changes occur frequently causing taxpayer confusion
  • A relatively large number of applications for plug-in electric and alternative motor vehicle tax credits, about 20%, were deemed ineligible in 2015 by the IRS typically because they made erroneous or fraudulent claims for these types of credits.  

As mentioned, it’s hard to keep up with all of the green tax credits. Congress allows some of these credits to expire, while it renews others. Which ones? Tax credits for residential energy efficiency have been renewed and are available for purchases made in 2016, as well as retroactively to those made one year earlier in 2015.

Let’s focus on an available credit growing in popularity. The solar Investment Tax Credit (ITC) is currently a 30 percent federal tax credit claimed against the tax liability of residential taxpayers under § 25D and commercial and utility under § 48 investors in solar energy property. The residential ITC allows homeowners who purchase solar systems outright and have them installed in their homes to apply the credit to their personal income taxes. Businesses that install, develop and/or finance a solar project may claim the ITC, which decreases to a 26 percent credit in 2020 and a 22 percent credit in 2021.

The solar ITC supports the deployment and utilization of solar energy by individuals and businesses in the United States to increase growth in the solar industry, including the creation of new jobs nationally. This investment tax credit for residential and commercial solar use has assisted solar installation in growing by a compound annual growth rate of 76 percent since the implementation of the ITC ten+ years ago in 2006. The existence of this tax credit through 2023 provides a reasonable amount of market certainty so that solar companies may develop over the long-term. Thus, competition, research, and innovation are thereby promoted, which ultimately benefits all energy users.

A qualified tax professional may help identify tax credits that apply to you individually or to your business. Utilizing all of the available green and energy tax credits requires the assistance of an experienced and knowledgeable tax professional. If you have questions about this or any tax-related issue, call THE TAX EXPERTS at the Thorgood Law Firm For a FREE consultation call 212-490-0704.Most Confusing Parts Of The Income Tax Code, Part 7: Green Tax Credits

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