I have been using Perplexity.Ai’s pro plan. They offer four models, and I’ve been using Claud 3 by Anthropic and Perplexity’s proprietary model.
I’ve been interested in the tax code and generating more deductions. I also have another problem. The monopoly that supplies my home with power spends a lot of its income on lobbyists and political donations which has allowed them to get the regulator to OK power rates that are absolutely astronomical.
They are charging their customers $0.60 per kwh. The national average is 13-18¢ Even with solar making 70-75%% of my power I spend about $2000 a year on energy.
I wondered if there was a way to generate tax write-offs and increase my energy resiliency by using the money I save on my utility bill to pay the interest.
The AI laid out a lot of information that I found to be quite useful and the answer is: probably. I still have to check the details out but here’s how it would work.
1. Purchase $20,000 to $30,000 worth of batteries and a separate set of solar panels that are not tied to the grid. This would generate a tax credit of 30% which would offset $6,000 to $9000 in federal income tax. This is the Residential Clean Energy Credit.
2. I already have panels that make 70% of my power but I still have to watch my power usage. When you pay 4-5x the national average for each kilowatt of power, the costs can quickly get out of control.
I’m enrolled in a net metering plan but I can’t add more solar without getting kicked off the plan. This net metering plan is valuable and not worth losing. The net metering plan basically allows me to receive credits for excess power production sent to the utility.
So what I plan to do is create a secondary solar system that just charges the battery packs. The battery would power the house by a transfer switch which take my house off grid when flipped.
During summer and peak hours my panels would repay my power deficit (possible thanks to the nem plan) and when the sun is down I would power my house from the battery pack instead of from the grid. This would potentially eliminate my true up bill which is $1200 and rising to what I anticipate to be about $2000 a year. I also spend about $800 on natural gas every year, mostly for heating. We could use electric space heaters to save the $800 and take advantage of the extra solar production. I only use my heater on very cold days, in California, most years it’s a few weeks between December through February, but it is still a significant annual expense that I could eliminate.
It would also let me keep my house at a frosty 72 degrees if I feel like it and improve the value of my home substantially by making it more energy efficient and more energy independent as I would be able to power the home from the battery pack for 3-5 days and connect a generator to the transfer switch as well.
3. Finance the purchase with a heloc. Interest paid on the heloc is tax deductible if the money was used to pay for home improvements. The cost would be about $1800 per year which is offset by taking the money I was giving to PG&E to the bank instead. If my normal tax rate is 24% then it only costs me $1368 to pay the $1800 in financing charges because my interest payments are offset by tax savings.
4. Take the tax savings and invest them into the S&P 500 for the 25 years of the panel’s lifetime. This works out to putting about $2600 per year into my portfolio for the first 3 years and then not adding any additional money. At the end of the 25 year period the portfolio should be worth $50,815 if I can average an 8% return.
The S&P has averaged more than that by a significant amount, (2-4 percent over the last 20 years).
The savings from the energy is paying for the loan, but the loan will be repaid after 15 years. If I contributed all of the tax savings from the transaction to include the 15 years of interest that I’d write off of, it works out to contributing around $432 per year in addition to the tax savings from the credit. I’d do this for 15 years, then take the $1800 I was paying each month to the bank and put that into the portfolio as well for the remaining 10 years of the panel’s lifespan. At the end of 25 years, the balance would he around $100,000.
If I match the savings and add $2142 per year for the 25 year lifespan of the system, at the end of it I’d have $170,000.
These scenarios underscore the importance of understanding financing and the future value of money. By borrowing money at market rates today, I can eliminate a bill, generate tax deductions and credits, improve my home, and generate a return of $50,000 to $170,000 while keeping my net expenses virtually the same, all I’ve done is changed who I pay money to.
This is just one example of how you can stack tax deductions and credits to be able to maximize the tax system. I’m not a tax advisor and if you want to do something like this you should check with your own tax advisor before making a decision.