Case Study: Solar Flip Partnership • Learn with Valur

What are solar tax benefits?

The Inflation Reduction Act (IRA) is the single largest investment in climate and energy in American history, providing up to $369 billion in tax incentives for green infrastructure. In particular, the IRA increased and extended previously available tax benefits — tax credits and depreciation — for specific renewable energy projects, including solar.

The basic tax benefits of qualified solar infrastructure investments are massive, and we explain them in detail in our solar tax credits guide and case study.

What is a flip partnership?

A flip partnership is a version of the IRA’s qualified solar investments — a partnership structure that allows investors to receive a greater share of the tax credits and depreciation associated with a specific project. The key mechanism is that by borrowing, the investor can increase the amount of cash in the project and, as a result, the tax credits and depreciation available. You can read more about the details in our guide to solar flip partnerships.

How do flip partnerships work?

The flip partnership structure works by allocating most of the tax credits and depreciation — typically 99% of the tax benefits — to the investor partner in the early years of the project’s life. This can be particularly advantageous for the investor, as they can use the tax credits and depreciation created from the bank partner’s loans, thereby increasing the tax benefits they receive without increasing their personal investment. In return for these supercharged up-front tax benefits, the sponsor partner receives the majority of the cash flow from the project over its lifetime.

With those details out of the way, let’s take a look at a case study to illustrate how leverage can significantly increase your returns from solar investment.

Solar investment tax benefits: Case study

Aaron is a married California resident with $2,300,000 in income in 2023, and, as a result, he’s looking at $870,000 in federal taxes and $265,000 in California taxes at the end of the year. After paying $1,135,000 in total taxes, that would leave him and his wife with $1,165,00 — an almost 50% haircut.

As we explained in earlier articles, however, an investment in a qualifying solar project could earn the family significant tax credits, depreciation deductions, and ongoing income to mitigate their high tax burden.

Specifically, imagine that the family chooses to invest $381,000 in a flip partnership solar project this year, they can reduce their tax bill by more than $650,000! You can read more about the mechanics (including “active investor” and other regulatory requirements) here.

Situation Overview:

Income: $2.3M
Expected Taxes (w/o solar benefits): $1.135M
Post-tax cash: $1.165M
Solar Investment: $381,000

Results:

Total tax savings: Reduce federal and state taxes by $657,000 (172% of the $381,000 investment). This is money the family otherwise would have lost to taxes.
- Tax Credits: $314,000 in tax savings in the first year, or 82% of the initial investment
- Depreciation: $343,000 in tax savings, or 90% of the initial investment over the first six years
Total Income: Negligible. While you will receive some income distributions over the early year they are minimal and the developer has the right to buy back your right to income distributions after 5 years.
Tax Liability: When the developer buys back their equity, sometime between year 6 and 20, this will create a tax liability for you. Because the value of the depreciation you took was greater than your investment, due to the debt and developer contributions, when you sell your equity you will be taxed on the difference between the deprecation value and your investment or $206,000

How to invest in qualifying solar projects

Speaking of which, how can you go about investing in IRA-qualified projects? It’s relatively simple: Valur has partnered with nationally recognized accounting and investment firms to facilitate investments into solar projects. We will help you identify the opportunity, visualize the potential benefits, and calculate how much you need to invest to capture the right sized tax credits. From there, we and our partners will help you seamlessly finalize your investment and keep track of the relevant data for ongoing tax purposes. If you are interested in learning more, schedule a time to chat with our team.

About Valur

We built a platform to give everyone access to the tax and wealth building tools of the ultra-rich like Mark Zuckerberg and Phil Knight. We make it simple and seamless for our customers to take advantage of these hard to access tax advantaged structures so you can build your wealth more efficiently at less than half the cos of competitors. From picking the best strategy to taking care of all the setup and ongoing overhead, we make it easy and have helped create more than $500m in wealth for our customers.