Investing in solar energy as a tax-saving tactic: the value of solar power for medical professionals and pharmacists
Investing in solar plants can offer significant tax benefits for medical professionals, thanks to federal and potentially state solar tax credits. Here's a breakdown of how these investments can affect taxes and key considerations to maximize the benefits.
Tax Benefits from Solar Plant Investments
The Federal Solar Investment Tax Credit (ITC) offers a credit of up to 30% of the cost to install a solar system. This credit reduces your federal income tax liability directly, not just a deduction. To claim the ITC, individuals (including medical professionals) should file under IRS Form 5695, while commercial projects use Section 48 of the tax code.
The full 30% credit is available for systems installed through 2025. However, recent legislative changes have accelerated the phase-out, so acting promptly is essential to capture the full benefit. The credit reduces to 26% in 2033 and 22% in 2034 before expiring.
Key Considerations for Medical Professionals
- Ownership Matters: To claim the ITC, you must own the solar system. Financing does not disqualify the credit as long as ownership is retained.
- Timely Installation: Projects should be completed before the end-of-2025 deadline or abide by the conditions for beginning construction by mid-2026 for business projects.
- Business vs. Personal Investment: Medical professionals should evaluate whether to invest personally or through a business entity. Using a business entity can open additional tax planning opportunities but requires compliance with commercial solar investment rules.
- Combine with State/Local Incentives: Many states and local governments offer additional tax credits, rebates, or incentives, enhancing the financial returns from solar investments.
- Legal and Financial Advice: Given the complexity of tax situations for medical professionals, consulting with a tax advisor experienced in renewable energy investments is crucial to structure the investment to maximize benefits and comply with all IRS rules.
- Impact on Overall Tax Planning: The solar tax credit directly reduces tax liability rather than taxable income, which can be highly beneficial. However, it is nonrefundable, so your tax liability must be sufficient to utilize the credit fully in the year claimed, or you may need to carry over unused credits to future years.
In addition to the ITC, special bank loans can be used to finance solar plant investments, with the repayment made using fed-in electricity. After a solar plant is put into operation, an additional 20% depreciation of the investment amount is allowed.
Lease agreements for solar plants should be checked or drawn up by a specialist lawyer to prevent difficulties with property owners. Investing in independent photovoltaic plants on leased areas is more lucrative as they form a separate business with independent income and expenses.
Solar plants offer double leverage, allowing tax depreciation and generating long-term income. In the current economic environment, investments in solar plants are particularly worthwhile. Pharmacists and doctors can optimize their high tax burden by investing in solar plants, and tax relief can be claimed retroactively for solar plant investments.
Many photovoltaic plants pay off in the first year of operation. To protect against financial losses from solar plant investments, earnings shortfall insurance can be taken out.
Olaf Zeh and Philipp Zeh, the managing directors of Ärzteversorger GmbH, a subsidiary of FW Faire Werte eG, assist doctors, dentists, and pharmacists in building wealth through tax relief via well-thought-out photovoltaic investments. Section 10d EStG provides for the loss carryback, allowing losses from the first business year to be carried over to the previous year and offset against profits.
In summary, medical professionals investing in photovoltaic solar plants can reduce their federal tax liability by up to 33% of their installation and equipment costs through the ITC if they act quickly and ensure they meet ownership and timing requirements. They should carefully consider whether to invest personally or via a business, combine federal and state incentives, and seek specialized tax advice to maximize financial and legal benefits.
- Pursuing environmental-science initiatives, such as investing in solar plants, can offer medical professionals substantial finance-related advantages through federal solar tax credits like the ITC.
- Besides the Federal Solar Investment Tax Credit, specialized bank loans and depreciation benefits can further boost the financial returns for medical professionals interested in solar-plant investments.
