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Thread: TSP Tax Question

  1. #1

    Default TSP Tax Question

    I'm retired (since June of 2020) and have not touched my TSP. I'm guessing that my tax liability right now will be about 6k the next time I do taxes as it's just my pension and a part time job.

    I'm seriously considering going solar for my home (my power bill averages around 380.00 a month).

    There is a tax credit that must be used in the first 18 months from the government to the tune of 26% of the solar system. My system would cost about 99K and should get rid of 100% of my power bill. This includes a new roof, so it's a nice time to get a "rebate" on the roof.

    So, what if I take out enough TSP this and next year so that the solar credit will eat up all the taxes I would pay on the withdrawal? I'm going to pay taxes on the TSP withdrawal anyway; I'm thinking use the credit to avoid a good portion of this tax.

    Do you think this is a good idea? Does anyone know the math for figuring how much I would have to take out of my TSP to eat up all my tax credit?

    The plan would be to put the money I take out of TSP into my brokerage account, not use it to pay the solar system. I prefer the 25 year 1% loan they are offering.

    P.S. I know that the "break even" on a 100k system would be years and years, but the loan amount would be about 80.00 less than my current power bill a month, so I see it as a win. This number should get better for me over the years as power costs go up. I plan to live in this home until I die, so the added money does not worry me as far as resale of the home.

    Good idea? Bad idea? Why? What about the math?

    Thanx!


  2.  
  3. #2

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    Default Re: TSP Tax Question

    What happens in ten years when your solar panels break and the company is out of business? What makes you think power costs will indefinitely go up? If more use solar panels shouldn't that drive down the price of all electricity?

    This reminds me of the advice to buy a house for the tax write-off. The write-off doesn't offset the money spent on the mortgage. $380 a month in electricity is absurd, but hey, even so it would take you 20 years to break even. I'd be willing to bet the solar panels will need to be replaced by then anyway, just like a furnace or hot water tank.

    I think the tax questions would be better answered by a CPA.

    Are you the guy that bought the boat and house in retirement? I can't remember.

  4.  
  5. #3

    Default Re: TSP Tax Question

    Yes, I'm the guy

    Thanx for your advice. As always, you make excellent points.

    I asked the sales guy the same thing you did. The warranty is 25 years, and the parts are through the manufacturer. So if they went out of business, of course things would be difficult, but perhaps not impossible. They have been around 20 years, and have an A+ rating with the BBB. I found only 1 complaint from 3 years ago, and the company responded and it appears they made it good.

    I guess anything in this world has some inherent risk. Heck I drive a Jeep, what if Fiat (who owns it) goes out of business?

    Actually, 380.00 is kinda low, my last power bill was higher. If you look historically, I'm pretty sure that utilities go up much more than they go down. My power company just requested a 139million state wide increase, which will probably be approved. It's a pretty good bet that my bill will not go down, but you never know. I do know that I'm projected to have a smaller loan payment than power bill from day one.

    I was glad when I saw that you had replied, because I know from my previous threads that you give good, sobering advice. I'm always open to your input, as well as others here.

    I may need to get with a CPA, but I'm still hoping to get an answer to my initial question of whether or not I can get the total tax credit, which is a big part of the financial puzzle.

    If I subtract the total tax credit, and the money I would pay for the new roof from the total (which I need), the solar is actually 73, not 99k.

    [COLOR=rgba(0, 0, 0, 0.87)]Base Price[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]Based on a 22 kW installation[/COLOR]
    $81,318.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]






    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]



    [COLOR=rgba(0, 0, 0, 0.87)]ASPHALT SHINGLE ROOF HOME & DETACHED GARAGE[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]1 x $18,505.00[/COLOR]
    $18,505.00[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]






    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]




    Gross Cost[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]
    $99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]


    -$0.00


    $99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]



    [COLOR=rgba(0, 0, 0, 0.87)]Federal Tax Credit[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]Residential Renewable Energy Tax Credit - 26%[/COLOR]

    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]


    -$25,954.12


    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]



    [COLOR=rgba(0, 0, 0, 0.87)]

    [/COLOR]
    [COLOR=rgba(0, 0, 0, 0.87)]
    Cost after Rebates & Incentives*[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

    [/COLOR]
    [COLOR=rgba(0, 0, 0, 0.87)]$99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

    [/COLOR]
    [COLOR=rgba(0, 0, 0, 0.87)]-$25,954.12

    [/COLOR]
    [COLOR=rgba(0, 0, 0, 0.87)]$73,869.41

    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

    [/COLOR]

  6.  
  7. #4

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    Default Re: TSP Tax Question

    Does your utility buy back any power you might put back into the grid?
    May the force be with us.

  8.  
  9. #5

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    Default Re: TSP Tax Question

    I looked into solar a few years back along with the government tax credits. At the time I wasn't looking to purchase the battery system with it. I would now however. The price wasn't bad, I think around 23K and the solar panels were Canadian built and I think the warranty was 20 years. The break even point was 12 years. Part of the problem here is that the local utility didn't offer any payback on excess power going back into the grid. The final decision came down to solar or fix a leaky basement.
    May the force be with us.

  10.  
  11. #6

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    Default Re: TSP Tax Question

    What nasa said.
    Quote Originally Posted by dave123 View Post
    Actually, 380.00 is kinda low, my last power bill was higher.

    If I subtract the total tax credit, and the money I would pay for the new roof from the total (which I need), the solar is actually 73, not 99k.
    [COLOR=rgba(0, 0, 0, 0.87)]Base Price[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]Based on a 22 kW installation[/COLOR]
    $81,318.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]






    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

    [COLOR=rgba(0, 0, 0, 0.87)]ASPHALT SHINGLE ROOF HOME & DETACHED GARAGE[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]1 x $18,505.00[/COLOR]
    $18,505.00[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]






    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]






    Gross Cost[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]
    $99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]


    -$0.00


    $99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

    [COLOR=rgba(0, 0, 0, 0.87)]Federal Tax Credit[/COLOR][COLOR=rgba(0, 0, 0, 0.54)]Residential Renewable Energy Tax Credit - 26%[/COLOR]

    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]


    -$25,954.12


    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]


    [COLOR=rgba(0, 0, 0, 0.87)]

    [/COLOR]
    [COLOR=rgba(0, 0, 0, 0.87)]
    Cost after Rebates & Incentives*[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

    [/COLOR]

    [COLOR=rgba(0, 0, 0, 0.87)]$99,823.53[COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

    [/COLOR]
    [COLOR=rgba(0, 0, 0, 0.87)]
    -$25,954.12

    [/COLOR]
    [COLOR=rgba(0, 0, 0, 0.87)]
    $73,869.41

    [COLOR=rgba(0, 0, 0, 0.54)][/COLOR]

    [/COLOR]
    Wow. $380+ seems like a big electric bill. Don’t know how big is the house, where you live or what kind of heat you have.

    You probably have checked all this out but any time I hear someone considering solar and $0 electric I advise them to carefully check out the electric company’s current rate structure and rules. Right now, here in AZ the structure has been modified so no one pays $0. The old “net metering” structure is gone and only grandfathered. Net metering means in and out and they credit you for what you produce. New tariffs are called RCP and EPR. Look em up.

    Your inserted files came through as HTML code only, at least for me.

    $73k seems a lot for a 22kW system unless it has a storage capability. Plus that is a lot of sq feet. With no storage system aka batteries you go down when the grid does so no bragging rights about still being “up”

    Many people want to go solar because it seems like the right thing to do. I’m not against that at all. I am cautioning about the expectation of $0 electric bills.

    PO

  12.  
  13. #7

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    Default Re: TSP Tax Question

    Thing about the CPA is taxes have gotten so complicated, especially with the Secure Act. Accountants are still scrambling to get everything figured out. The best you can do is estimate what tax bracket you will be come 2021 tax filing season then go from there. Depending on how complicated your return is, you might be able to ball park how much you'll owe.

    Solar is very compelling, but I just don't think we're there yet.

    I know someone with a farm and he put the panels up on his farmhouse roof (aluminum roof). One year we had one of the sunniest years in recorded history in our area and he said he was around net zero, but if I remember, he was still in some honeymoon phase where the utility company was paying bonus money for any surplus. He also said he'd never put those up on his actual house roof (snow, ice dams, shingles may not completely dry causing decay, etc.) and I agree there. Another summer was rainy and cloudy, a more average summer, and he wouldn't tell me specifics but did say it wasn't a bumper year for solar.

    I see houses in my neighborhood periodically getting them installed and it just seems like a Tesla vehicle right now. A niche product that will be manufactured by every major auto maker in 10 years and will be vastly better than the Tesla of today.

    I'd look into getting an insulation company to give you an assessment of your home's efficiency first. You might have a drafty or poorly insulated house causing your electric to be where it is.

  14.  
  15. #8

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    Default Re: TSP Tax Question

    This is the last year (unless they extend) so if you are going to do it, now would be the time. Credit is 22% for systems installed in 2021, so 73K X 22% = $16K credit or tax liability needed to take full advantage of the credit. If you currently have $6K liability, you need an additional 10K. Since you can carry it over to next year, you really need to only come up with $4K in additional taxes assuming your situation is same next year. How much you would need to withdraw depends on what your current marginal tax rate is and where you are in the tax bracket. Taxes are $1200 for every 10K in 12%, 2200 for every 10K in 22% bracket etc. Look at the tax brackets....it is pretty easy to calculate the taxes.

    Quote Originally Posted by dave123 View Post
    I'm retired (since June of 2020) and have not touched my TSP. I'm guessing that my tax liability right now will be about 6k the next time I do taxes as it's just my pension and a part time job.

    I'm seriously considering going solar for my home (my power bill averages around 380.00 a month).

    There is a tax credit that must be used in the first 18 months from the government to the tune of 26% of the solar system. My system would cost about 99K and should get rid of 100% of my power bill. This includes a new roof, so it's a nice time to get a "rebate" on the roof.

    So, what if I take out enough TSP this and next year so that the solar credit will eat up all the taxes I would pay on the withdrawal? I'm going to pay taxes on the TSP withdrawal anyway; I'm thinking use the credit to avoid a good portion of this tax.

    Do you think this is a good idea? Does anyone know the math for figuring how much I would have to take out of my TSP to eat up all my tax credit?

    The plan would be to put the money I take out of TSP into my brokerage account, not use it to pay the solar system. I prefer the 25 year 1% loan they are offering.

    P.S. I know that the "break even" on a 100k system would be years and years, but the loan amount would be about 80.00 less than my current power bill a month, so I see it as a win. This number should get better for me over the years as power costs go up. I plan to live in this home until I die, so the added money does not worry me as far as resale of the home.

    Good idea? Bad idea? Why? What about the math?

    Thanx!

  16.  
  17. #9

    Default Re: TSP Tax Question

    Thank you all very much for the great input.

    First of all, sorry about the HTML code. By the time I noticed it, someone had replied, and I could no longer edit.

    A few answers here:

    First of all, yes 380.00 is crazy. It's a pretty big house with a ton of windows and I'm sure new windows, etc. could help, but my primary issue is the heater for the pool, which added about 80.00 a month. I figured that solar would be better than spending 25k on windows, ect. and being disappointed when the bill failed to move as much as I hoped.

    But you guys got me thinking, I went to a 3rd roofer and a 5th solar company. Tesla has come in with virtually the same system, but at 47k befor the tax credit. I would still need a roof, but that was always part of the deal as mine is about due.

    This brings my payment even lower. I don't see any scenario where I won't have a smaller payment than my utility bill would have been unless their projected numbers are WAY off.

    Good point on the company going out of business ect. I feel pretty good about Tesla as a company that will be here, and do a quality job. They promised that they would only use their people to do the job, which I like.

    We have net metering, and I would get some back. I checked. My bill would still be about 12.00 to be hooked into the system. I would sell very little back, so that won't help much, if any.

    Great info, Evilanne; I've checked and I'm pretty sure the tax credit is 26% this year, and 22 next year. I took Bullitt's advice and contacted a CPA. Not sure the numbers yet, but I still think this is a good time to take out some TSP without a tax hit.

    I'm not 100% sold either way, but after I get firm numbers, I'll report back in case anyone else is considering solar.

    And hopefully, I can get the math figured..


  18.  
  19. #10

    Default Re: TSP Tax Question

    I can't get this to edit, so another post:

    p.s. Great idea Bullitt; I'm going to check with an insulation company, see if I can get an estimate - no sense leaving any stone unturned.

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  21. #11

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    Default Re: TSP Tax Question

    Dave, as usual, hell of a story. Thanks for sharing.

  22.  
  23. #12

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    Default Re: TSP Tax Question

    Hi Dave. I hope you are not growing too weary of all this advice and comment. We are just trying to help.

    I just read something that says the tax credit will remain 26% through 2021 and drop to 22% in 2023. The post links to an amendment to an amendment to H.R. 133 and is over 5000 pages long so good luck. I don’t know if you ever tried to follow a bill through congress but it is not straight forward.

    Like Bullitt said, hell of a story and thanks for sharing.

    FWIW, back in 2012 I bit on the local electric providers offer for a home energy checkup. The house was then 15 years old and supposedly met the energy star requirements at the time it was built, 1997. It did cost me IIRC $99. The contractor was thorough and identified a lot of things. The major one was that there was no insulation at all in the attic crawl space on the east end of the house. This was a difficult space to get to for me in my defense😊 They took lots of photos up there which were identifiable as being my house. The second biggie they found was over the gas fireplace the space was open to the attic and therefore hot air poured in to the house. I stupidly thought that was because I often didn’t shut off the pilot light but after shutting it off hot air was still pouring in. Third thing they found was several exhaust fans had no or inoperable flapper valves to stop air flow from the outside. They did a flow test but don’t think they did infrared photos.

    Some of this seems counterintuitive as hot air rises. The contractor proved their point by me feeling the hot air flowing in through the fireplace and vents.

    To finally get to the bottom line, I had the same contractor install insulation both mats and blown in after fixing the other stuff and electric bill decreased by about $100 per month. Had been approaching $500. About that time our A/C system started always needing repair so we replaced it with a higher SEER model. Since then our electric bill has been peak in the low $300s and averages below $200. Just saying. Do the energy audit but look to your utility company first. It may seem like they want you to use more so they bill more but they have a stake in reducing peak usage.

    Good luck in your decision. There is something good if you have a system that provides your house with power if neighbors are down. Glad to see you are realistic about the payback.

    PO

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