I need a HERO

Posted by on Friday, February 26th, 2016 in Blog

Many taxpayers have inquired as to the tax benefits and deductibility of the HERO (Home Energy Renovation Opportunity) and PACE (Property Assessed Clear Energy) loan programs. As background, both programs provide financing for eligible energy efficient, water efficient, and renewable energy products. They finance 100% of the cost to purchase and install eligible products. They offer fixed interest rates with amortization periods of 5, 10, 15, or 20 years. The loans are secured by the property.

Both the PACE and HERO programs allow homeowners to finance solar panels through their property tax bills. There has been debate about what portions of the property tax bill are deductible. Although payments are made through the property tax bill, they are not deductible as property tax payments. Depending on some factors, the interest portion of the payment, however, may be deductible as a business interest expense (commercial property) or home mortgage interest expense (personal residence).

If the interest paid on the loan in a tax year is $600 or more, the taxpayer should receive a Form 1098, Mortgage Interest Statement. On the property tax statement, there will also be a separate line showing the total amount of payment, including both principal and interest. If less than $600, separating out the tax deductible portion of the payment may be a bit more complex.

The good news is that although the solar panel payments are not deductible as property taxes, the installation of the panels is unlikely to result in an increased property tax assessment. A qualified solar energy system is not considered new construction that is subject to reassessment.

There are a number of considerations involved in regarding the timing, rates, and creditability of expenses for a solar installation. Our firm is happy to assist in calculating our clients’ personal scenarios for the most tax efficient outcomes.

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