Is the Federal Tax Credit Basically a 10 yr Loan at 0.99%?

[snorp]

Please check my logic and math. I'm thinking about ordering 4.25kW solar panels and 1 Powerwall.

Cash price $19,042
Down payment $1904
Financed amount $17,038
10yr loan at 0.99%
$150.06/mo loan payment
$869.39 interest paid over 10 yrs

And then I get a federal tax credit of $4951. It appears that this doesn't have to be applied to the loan principle, which equates to me getting $4951 loaned to me for 10yrs at 0.99%. Is that right?

I could invest the $4951 and further offset my cost assuming I do better than 1%. Even if I only achieved a 3% return over 9 years, that would offset the interest making this effectively a 0% loan. Or I could use that money to pay the loan payment for the first 33 months.

This seems too good to be true. What am I missing?

 

[wjgjr]

Yes, if the terms of the loan do not include a balloon payment to correspond with the ITC (as some other solar loans do,) it is effectively like financing the credit at 1%. It is sort of like doing a home refinance with a cash out option (it just happens the cash comes next tax season from the federal government instead of from the lender.) And, at 1%, there is a good argument for not paying back the loan any faster than required since it is likely you can invest it or use it for any other planned expenses that might have required a loan at a higher rate.

 

[bryan995]

Yes. And after accounting for inflation it is even better (profit??)... .

 

[snorp]

Wow that's great!

Thanks for the fast responses, just placed my order!

 

[MCNE]

Please check my logic and math. I'm thinking about ordering 4.25kW solar panels and 1 Powerwall.

Cash price $19,042
Down payment $1904
Financed amount $17,038
10yr loan at 0.99%
$150.06/mo loan payment
$869.39 interest paid over 10 yrs

And then I get a federal tax credit of $4951. It appears that this doesn't have to be applied to the loan principle, which equates to me getting $4951 loaned to me for 10yrs at 0.99%. Is that right?

I could invest the $4951 and further offset my cost assuming I do better than 1%. Even if I only achieved a 3% return over 9 years, that would offset the interest making this effectively a 0% loan. Or I could use that money to pay the loan payment for the first 33 months.

This seems too good to be true. What am I missing?

Yeah but the tax credit applies to your tax liability correct? I had to create that liability so that the credit isn’t wasted and not used. Net, they won’t be sending me cash.

 

[snorp]

Correct, a person has to have at least that much in a tax liability. However, any overpayment to that liability can result in a tax refund. The credit could possibly result in a larger refund equal to the credit amount. I think... I'm not a tax expert.

 

[MCNE]

Correct, a person has to have at least that much in a tax liability. However, any overpayment to that liability can result in a tax refund. The credit could possibly result in a larger refund equal to the credit amount. I think... I'm not a tax expert.

I’m not sure it works that way. If you have more than you need for the liability it gets carried over to the next tax yr. I’m not a tax expert either but that’s the way it worked out with my tax evaluation before I bought the system. I’ll have like $1500 that will be carried over.

 

[wjgjr]

Correct, a person has to have at least that much in a tax liability. However, any overpayment to that liability can result in a tax refund. The credit could possibly result in a larger refund equal to the credit amount. I think... I'm not a tax expert.

Right - you need that much liability, or you will not get the credit, but note that you can carry it forward (so long as the credit does not expire) - so if you have a $5k credit but only $3k in total taxes due for the year, you can claim the remaining $2k next year (assuming you have at least that much in total taxes owed next year.) Whether you get a refund depends on if you paid in during the year more or less than what you owe, but whether you have a refund or a bill from the IRS doesn't affect ITC eligibility.

With a big credit like the ITC where you are expecting a big refund, you might also have the option (always good to check with your tax advisor) to reduce withholding so you get the ITC money back over the course of the year instead of a refund check next year. (As in the above, if you have a $5k ITC credit, you could instead have your employer reduce your withholding by about $100 per week to get your money now.)

 

[el-guapin]

How about

........With a big credit like the ITC where you are expecting a big refund, you might also have the option (always good to check with your tax advisor) to reduce withholding so you get the ITC money back over the course of the year instead of a refund check next year. (As in the above, if you have a $5k ITC credit, you could instead have your employer reduce your withholding by about $100 per week to get your money now.)

or reduce employer withholding to $0 (exempt)

 

[MCNE]

How about

or reduce employer withholding to $0 (exempt)

Right that would do it or not withholding any taxes from retirement distributions to create the liability.