At some point during each tax season, there is a moment when I notice a recurring trend or theme that is unique and fascinating to that specific tax season. So what is this year’s most interesting trend?
For the 2017 tax season, what I found most fascinating is the number of clients who installed solar panels on their home during 2016. People who added solar property to their homes are eligible to claim a federal tax credit equal to 30% of the costs incurred.
Remember, a tax credit is a dollar for dollar reduction in the taxes you owe.?Spending $40k on solar panels for your home, therefore, translates to a $12k reduction in the federal income taxes you’ll pay that year. You report this valuable tax break on a?Form 5695.
Many states allow taxpayers to claim a Solar tax credit as well.? For example, Massachusetts allows a tax credit of up to $1,000 while New York allows up to $5,000 in tax savings for installing solar.
According to the?Instruction of Form 5695:
Qualified solar electric property costs.?Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home located in the United States. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. The home doesn’t have to be your main home.
Qualified solar water heating property costs.?Qualified solar water heating property costs are costs for property to heat water for use in your home located in the United States if at least half of the energy used by the solar water heating property for such purpose is derived from the sun. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. To qualify for the credit, the property must be certified for performance by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the state in which the property is installed. The home doesn’t have to be your main home.
Please note that the solar credit has been extended through 2021.? However, the full 30% tax credit applies only through 2019, then the credit decreases to 26% of eligible costs incurred for 2020, and then decreases again to 22% for 2021.
Prior Years Trends and Observations
Here are the most interesting trends that I observed during the prior 5 tax seasons:
2016:?The number of clients who instructed me to allocate $3 of their tax liability to the Presidential Election Campaign Fund, due primarily to the craziness brought on by the Presidential Election.
2015:?The year of the energy efficient tax credit with lots of my clients purchasing solar panels, electric cars, and even re-charging stations for those electric cars, including my long-time Dr. Jim who purchased all three.
2014:?With a variety of tax hikes taking hold in 2013, the trend that tax season was higher taxes on lower income for high-income taxpayers, with many clients getting stuck paying obscenely high balances due.
2013:?This was the first tax season that I noticed a sizable uptick in the number of individuals taking advantage of Health Savings Accounts.
2012:?Record low interest rates meant that many homeowners refinanced their home mortgages at least once during 2011, including all but one or two of my clients who had a mortgage.