Active Investors - New Opportunity for Renewable Energy Industry
I've been working in the solar tax space for several years and I'd love to hear others' thoughts on active participation in solar projects.
From my research under IRS guidelines, individuals can actively participate in solar projects to reduce their active tax liability by using tax credits and deductions a number of ways. To make this work, individuals need to understand the IRS regulations around active participation to ensure compliance with the tax code while also maximizing their tax benefits.
For individuals to qualify as active participants in the solar projects they need to meet certain criteria, specifically, individuals must spend at least 100 hours during each year to be considered active from a tax perspective.
This 100 hour requirement focuses on involvement in the project. Merely having a financial stake in the solar project is not sufficient to qualify as active. To qualify as an active, one must demonstrate participation in the project's activities, decision-making and / or operations.
To meet IRS's active participation, individuals must commit time and effort regardless of ownership status. For investors considering active participation in solar projects, below are some key strategies to ensure compliance and maximization of tax benefits:
1) Time & Activities: Maintain detailed records of time spent on activities related to the solar project. This could include site visits, monthly calls, managing of subcontractors, annual meeting, etc. Documenting the time spent and these activities helps substantiate active participation for, while providing evidence in case of an audit.
2) Participate Meaningfully: Actively engage in decision-making, attend meetings, conduct annual site visits and contribute time or resources to the project's success. Demonstrating active involvement in the project backs up the case for active participation.
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3) Passive Participation: Be cautious of activities that may be construed as passive. These include delegating all responsibilities to 3rd parties without oversight or direction of subcontractor. Remember passive activities do not qualify for the same benefits as active. Stay active in the project.
4) Stay Informed and Monitor Compliance: Stay updated on regulations and changes in the solar industry. Review compliance with IRS guidelines to ensure your participation meets the required thresholds.
As stated above, based on my research there should be a lot of opportunity for W-2 employees to invest in solar projects. By actively participating in solar projects under IRS guidelines, W-2 employees should be able to reduce their active tax liability while investing in the clean energy revolution.
As the demand for clean energy continues to grow, leveraging W-2 employees' active income in compliance with IRS guidelines should present a valuable opportunity for individuals and developers to achieve environmental and financial success.
I'd love to the industry's thought on this tax investment stragtegy.
Attached is an article from Novogradac that discusses this strategy in more detail.