Recently we connected two of our clients – Argand Energy Solutions (a solar contractor) and Martin Truex, Jr. (a NASCAR driver and owns a NASCAR race shop). Argand installed solar panels at MTJ Motorsports which has great tax benefits. I'm always very excited when we have the opportunity to help out a client. It's a great day when we can help out two clients in the same transaction. The 'win win' here is that, based on our tax planning ideas, we managed to boost the sales of one client, get a great tax benefit for another client, and along the way we helped out the environment. This was one of those times where being an accountant can truly be cool!
Here's how the tax benefits work, using round numbers.
Federal Credit available for solar systems – 30% - or $120,000 credit. (Business Energy Investment Tax Credit)
- North Carolina Credit available for the system – a 35% of the remaining $280,000 - but taken over five years – or $98,000.
- Total remaining cost of the system (the depreciable basis of the system is reduced by the amount of available credits) - $182,000 – so the tax benefit from the full depreciation of the system (which can be done in one year) is $72,800 assuming a 40% effective federal and state tax rate.
So – out of the gate the net cost of the system is effectively nothing. Annually the system generates about $15,000 in the power that is sold back to Duke Energy – is actually a money making machine when offset against power purchased back from Duke Energy!
More and more states are continuing to offer incentives for renewable energy sources, and more and more energy companies are paying a premium for renewable energy purchases. Although renewable still can't compete with oil, coal, and nuclear in terms of cost of production without these incentives, eventually it will be able to compete, especially if some of the incentives in place for these other sources are taken away. For now, it's built into our current tax legislation so, if you are thinking about renewable energy anyway, consider it.
For raw land owners solar and wind, depending on the state, also represent a great way to generate income while you are waiting for the land to appreciate / be developed.
See Fox Sports Coverage - http://msn.foxsports.com/nascar/story/Martin-Truex-Jr-Racing-to-Solar-Energy-04294375).