IRS Proposals Clarify Rules Regarding Solar Power Projects

t1The Obama administration has tried to give a push to solar and other renewable sources of energy. In conjunction with this, the IRS has clarified its position regarding the tax status of solar energy projects. This clarification will help investors make better decisions regarding solar energy projects as they can take into consideration any tax benefits that will impact the actual dividends received.

Even when the federal government does its best to help out solar power and while squashing coal and trying to destroy oil shale despite it creating thousands of high paying jobs for Americans, solar power is still not that appealing to so many people. It will be nice when solar power panels are more financially attractive because much of America receives plenty of sun.

The IRS has said that only solar energy projects that have 75 percent of their holdings in real estate qualify for a REIT status. REITs or real estate investment trust status are preferred by investors since they do not have to pay any corporate taxes but must distribute most of their earnings as dividend. For many years now the solar energy sector has been asking to be included as a REIT in order to be able to attract more investors.t2

The current definition is unlikely according to industry experts to achieve this aim. However, they are happy that the IRS has made clear its stand on the norms for solar energy projects to be considered REITs as both investors and those putting up new projects can tailor their plans accordingly.t3

Tax Laws

The tax laws in the US are complex as the government tries to balance its needs to collect additional revenues and encourage business growth especially in areas that it has identified as a priority. This is done by providing tax exemptions and incentives. One such major tax exemption is the REIT investment vehicle that does not have to pay any corporate tax. As solar energy projects also require large tracts of land, some of their promoters were eager to find out if they could qualify for a REIT status and attract more investors.

With the IRS having clarified its position on solar energy projects and REITs, those businesses and individuals who are considering entering this sector should first consult with an experienced tax lawyer who can advise them on the tax benefits.t4

It is shameful the IRS has proven corrupt and targeted political groups that disagree with the IRS. This is what is supposed to happen in a banana republic not a major world power.

A promoter of a solar energy project should first consult with a tax lawyer so that they can decide on how best to structure their investment to qualify for REIT status. By making the appropriate investments in real estate and technology, a business that wants to enter the solar energy space can also ensure that it qualifies for REIT status. Apart from this, the tax lawyer will be in a position to help the business take complete advantage of any other tax incentives and exemptions it qualifies for.

Individual Investors

Individual investors who are looking for better returns need to keep an eye on the tax impact as well. For instance, investing in a sector with medium margins but a high tax rate will lead to a lower return than a sector where the profit margin is not very high but is compensated by the lower tax or nil tax it attracts. As such individual investors should include a corporate tax assessment of their portfolios or a regular basis.