Federal Investment Tax Credit-A Brief Guide for Multifamily Owners

All You Need to Know About Federal Investment Tax Credit

The Federal Investment Tax Credit is arguably the most significant solar policy in the U.S. Whether we talk about individual homeowners or nationwide multifamily contractors, the Federal Investment tax credit has managed to attract everybody's attention. Since its implementation, the 30 percent tax credit has spurred an annual growth of 1,600 percent in the adoption of solar energy. The tax credit, however, is set to expire on December 31, 2016, which will eventually impact all rebates provisioned to property owners.

In this post, we will delve into the finer aspects of Federal Investment Tax Credit and how it works.

Federal Investment Tax Credit: Introduction
Introduced in 2005, the Federal Tax Credit for residential energy property was initially applied to social electric systems, fuel cells and solar water heating systems. In 2008, however, the tax credit was extended to geothermal pumps and wind-energy systems. The tax credit allows homeowners to claim up to 30 percent of the price that they have paid to install such systems in their property. The intention behind the introduction of the credit was to promote the use of renewable source of energy. As there is no credit limit, it  means homeowners are free spend as much as they want to minimize the carbon footprints of their property.

How Federal Investment Tax Credit Works
Property owners need to file their Federal taxes to claim a 30 percent refund of the qualified expenditures on renewable energy system installations. Those who owe Federal tax, will either:

1. Owe less
2. Owe nothing
3. Owe nothing but will have a credit leftover

To understand these three scenarios, let us consider the following examples:

A home owner Sam installed a solar system worth $30,000 in his house, which makes him qualify for a $9,000 Federal tax credit.

Scenario 1 - When Sam owes less
When April arrives, Sam files his tax and asks for the 30 percent credit. He comes to know that he owes $10,000 in taxes, so he deducts $9,000 tax credit and files for the remaining $1,000 that he owes.

Scenario 2 - When Sam owes nothing
Sam notifies his employer that he is entitled to a tax credit of $9,000 for the financial year. The employer adjusts Sam's withholdings so that he can take more money in the salary part. In this scenario, Sam will be required to apply $9,000 tax credit to his tax bill in April.

Scenario 3 - When Sam owes nothing but has a credit leftover
If Sam owns only $1,000 in taxes, his tax credit will cover the amount and the remaining $8,000 will be rolled over to the succeeding taxable year.

Solar tax credit is definitely a beneficial proposition for property owners as it results in substantial savings in the long run. Moreover, it increases the market value of the property. As there are no signs of an extension on the Federal Investment Tax credit, those planning to introduce energy efficient mediums in their property do not have much time to lose. Should you wish to learn more about the benefits of renewable energy systems for multifamily property owners, feel free to connect with our team of consultants.