3c:["$","$L3d",null,{"category":"$3e","relatedArticles":[{"id":"cG9zdDoyNzgzNTc=","databaseId":278357,"postId":278357,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1590,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwNg==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19506,"categoryId":19506,"link":"https://smartasset.com/tax-planning/articles","name":"Tax Planning","postCount":{"pageInfo":{"offsetPagination":{"total":132,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-planning","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$3f","date":"2025-02-25T18:22:53","excerpt":"

Buying high-value real estate often comes with additional costs, including the mansion tax. This tax is applied when a residential property exceeds a specific price threshold. It is typically set at $1 million or higher. The term “mansion tax” can be misleading as it applies based on property value rather than size or luxury level. […]

\n","featuredImage":{"id":"cG9zdDoyNzgzNjc=","databaseId":278367,"altText":"Homeowners review how much the mansion tax will cost.","date":"2025-02-25T18:09:33","fileSize":253074,"mimeType":"image/jpeg","modified":"2025-02-25T18:14:54","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2025/02/iStock-1394172082.jpg","__typename":"MediaItem"},"modified":{"datetime":"2025-2-25","readable":"February 25, 2025","readableExtended":"February 25, 2025, 6:22pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":{"expertise":"Financial Planning, Retirement Planning, Investment Planning, Tax Planning","__typename":"User_Additionalmeta"},"email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":38,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"aconde","__typename":"User"},"reviewedBy":null,"writtenBy":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. 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","

Since real estate taxes can significantly impact the financial viability of an investment, working with a financial advisor can help buyers explore potential tax-saving strategies.

","

What Is the Mansion Tax?

","

Unlike standard real estate transfer taxes, which apply to all property sales, the mansion tax is triggered only when a home surpasses a certain value. Mansion taxes typically function as one-time fees paid at closing and are calculated as a percentage of the property’s sale price. It can range from1% to over 5%, depending on the jurisdiction.

","

Consider the following example:

","

A buyer purchases a home in New York City for $3 million. New York imposes a mansion tax that starts at 1% for properties over $1 million and increases progressively for higher-priced properties. Based on the purchase price, the buyer would pay the following:

","

1% on the first $2 million: $20,000
1.25% on the remaining $1 million: $12,500
Total mansion tax: $32,500

","

Who Is Responsible for Paying the Mansion Tax?

","

The buyer is usually responsible for paying the mansion tax because it is added to the total closing costs of the real estate transaction. Since this tax is due at closing, buyers must budget for it in addition to other expenses like property taxes, attorney fees and title insurance. However, sellers may sometimes offer to cover this expense as part of the negotiation process to attract buyers.

","

How Can You Avoid the Mansion Tax?

","

The mansion tax applies to high-value real estate transactions, but there are legal ways to structure a deal to minimize or avoid this tax. Here are three common approaches:

","$4c","

Which States Have a Mansion Tax?

","

","

Several states and cities impose a mansion tax, each with different thresholds and rates. The following locations have some of the most notable mansion tax policies:

","

New York

","

New York has one of the most well-known mansion tax structures. The state imposes a 1% tax on residential properties sold for over $1 million, with progressively higher rates for more expensive homes.

","

1% tax for properties between $1 million and $2 million.
1.25% tax for properties between $2 million and $3 million.
1.5% tax for properties between $3 million and $5 million.
Rates increase up to 3.9% for properties exceeding $25 million.

","

The tax applies statewide, but it has the greatest impact in New York City, where real estate prices frequently surpass $1 million.

","

California

","

Certain cities in California, including Los Angeles and San Francisco, have mansion tax policies that impose additional transfer taxes on high-value properties. In Los Angeles, the ULA Transfer Tax, passed in 2022, applies as follows:

","

4% tax for properties between $5 million and $10 million.
5.5% tax for properties over$10 million.

","

This tax is designed to fund affordable housing programs and has significantly increased closing costs for high-end real estate transactions.

","

New Jersey

","

New Jersey applies a mansion tax to properties sold for more than $1 million, charging a flat rate of 1% on the total sale price. Unlike New York’s tiered system, New Jersey’s mansion tax remains at 1% regardless of how much the sale price exceeds the threshold.

","

Connecticut

","

Connecticut has a real estate conveyance tax that functions similarly to a mansion tax, with higher rates for more expensive homes:

","

0.75% tax for properties under $800,000.
1.25% tax for properties between $800,000 and $2.5 million
2.25% tax for properties over $2.5 million.
Properties exceeding $4 million are subject to an additional tax.

","

Bottom Line

","

","

The mansion tax is an additional cost buyers must consider when purchasing high-value real estate. This tax is meant to generate revenue for housing affordability programs through targeting “luxury” properties, but rising property prices in major cities can trigger it for buyers of modest homes as well. The buyer is typically responsible for paying the mansion tax, although some sellers may negotiate to cover or share the cost. Real estate advisors can provide additional insights into these types of transactions, too.

","

Tax Planning Tips

","$4d","

Photo credit: ©iStock.com/Liubomyr Vorona, ©iStock.com/nortonrsx, ©iStock.com/filadendron

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If you inherit or plan to bequeath a certificate of deposit (CD) as part of your estate, there may be tax consequences to consider. Three kinds of taxes could apply: income, estate and inheritance. While the principal amount of the CD transfers without income tax issues, any interest earned after death and before transfer will be treated as ordinary income on the tax return of the person who inherits it. Federal estate taxes won’t apply unless the size of the estate, including the CD, exceeds the generous federal exemption, and there is no federal inheritance tax to be paid by the heir. Several states have inheritance and estate taxes, and these generally have much lower thresholds for exemption, so they may come into play. Setting up the CD to transfer on death will help avoid probate, but won’t affect taxes. Let’s take a closer look at the tax consequences of inheriting a CD.

","

If you have questions, consider asking a financial advisor for help preparing your estate plan or handling any potential taxes on an inherited CD.

","

CD Inheritance Basics

","

A CD is a fixed-income savings tool offered at many banks and credit unions. It allows a saver to set aside a specific amount of money for a specific length of time ranging from weeks to years and, in return, earn a pre-set rate of interest. Federal deposit insurance makes CDs as safe as anything you can do with your money. However, CD interest rates, while often higher than a savings account, are likely to lag behind inflation. And there may be a penalty if you withdraw money before the end of the term.

","

Many savers and investors appreciate CDs for their safety and convenience. They may well be part of your estate. Or, if you’re going to inherit a CD from someone, you may be faced with the potential tax consequences. CDs can present tax complications depending on factors such as the size of the CD and where the deceased and heir reside.

","

Inherited CD Tax Considerations

","

Three types of taxes may come into play when you’re looking at the tax consequences of inheriting a CD: income, estate and inheritance taxes. The first of these is the one most likely to be encountered, but likely won’t be a major cost. The second may be relevant, but probably only to a small number of cases. The third is least likely and will be the responsibility of the heir who receives the bequest.

","

Income Tax

","

","

The IRS does not regard the value of an inherited CD as taxable. That is, if you receive a $10,000 CD, you won’t have to increase your reported income by $10,000. The interest on the CD is another matter, however. Interest earned before the deceased’s death is not considered income to the recipient of the CD. However, income earned by the deposit after the death is regarded as ordinary income taxable at the recipient’s usual tax rate. Because of the relatively modest interest rates paid by many CDs, the tax bill on interest earned is unlikely to be much except in the case of an unusually large CD inheritance.

","

It is worth noting that many banks will waive the early withdrawal penalty if the inheritor of a CD wants to withdraw funds before the term of the deposit is up. And, if the bank does charge a penalty on an inherited CD, the recipient of the bequest can likely deduct the amount of the penalty from taxable income for that year.

","

Estate Tax

","

Tax law does provide for federal estate taxes on inherited assets, but the tax only applies to estates over a certain amount. Currently, that amount is $13.61 million, so it’s only relevant to relatively few estates. There is no federal inheritance tax.

","

A handful of states also have estate taxes. Some use the same floor as the federal estate tax for their levies. However, a few have much lower thresholds. Oregon, for example, taxes estates over $1 million.

","

Inheritance Tax

","

A similarly small number of states have inheritance taxes, which the recipient of the bequest has to pay. Only Maryland has both estate and inheritance taxes. Generally speaking, due to their overall rarity and the use of thresholds below which taxes don’t apply, estate and inheritance taxes will not be concerns for most estates or heirs.

","

Transfer on Death

","

Some CD owners set them to transfer ownership automatically to a beneficiary on the owner’s death. This can be an effective way to avoid having the CD pass through probate, a process likely to add months or years to the time required to distribute funds to heirs, as well as incurring extra costs. However, transfer on death arrangements won’t affect inheritance or estate taxes on an inherited CD. Nor will they have any effect on taxes that could be due on post-death interest earned.

","

Bottom Line

","

","

Passing on a CD as part of an estate involves no major tax consequences in most situations. The most likely tax is the income tax that will be due on interest earned after the death of the person making the bequest. This tax will be paid by the inheritor of the CD. Federal estate taxes only apply on particularly large estates, and most states don’t have estate taxes. There’s no federal inheritance tax, and most states don’t tax heirs, either. However, some states have estate taxes with significantly lower thresholds than the federal level, and at least one state has both estate and inheritance taxes.

","

Tax-Planning Tips

","$65","

Photo credit: ©iStock.com/visualspace, ©iStock.com/seb_ra, ©iStock.com/AndreyPopov

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Hiring a nanny can provide much-needed support for families, but it also comes with specific financial responsibilities. One of those responsibilities is the “nanny tax,” a federal requirement that applies to families who employ household workers, including nannies, caregivers and housekeepers. As of 2024, if you pay your household worker $2,700 or more in a […]

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","

A financial advisor can help you understand your tax obligations, manage payroll taxes and make sure that your taxes are filed correctly.

","

What Is the Nanny Tax?

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The nanny tax refers to the federal and state taxes that employers must pay for household employees. If you hire a nanny and pay them over a certain threshold, you are considered their employer and must withhold and pay certain taxes on their behalf, along with the employer’s share of payroll taxes. The tax mainly includes Social Security and Medicare taxes (also known as FICA taxes), federal unemployment tax (FUTA) and possibly state-level employment taxes.

","

The IRS sets the threshold for when you must pay the nanny tax. In 2024, if you pay your household employee $2,700 or more in wages during the year, you are required to withhold and pay these taxes. It’s important to note that this tax applies whether the nanny is working part-time or full-time.

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Who Pays the Nanny Tax?

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The nanny tax is primarily the responsibility of the household employer, meaning the individual or family that hires the nanny. The employer must calculate and withhold the appropriate amounts from the nanny’s paycheck for Social Security and Medicare taxes. These taxes are split evenly between the employer and the nanny, with each contributing 7.65% of the nanny’s wages. Additionally, the employer is responsible for paying the full amount of the federal unemployment tax (FUTA) and, in some cases, state unemployment insurance taxes.

","

It’s important to distinguish between independent contractors and employees. Nannies, by definition, are considered household employees, not independent contractors, which is why the household employer must pay these taxes. Misclassifying a nanny as an independent contractor could result in penalties and back taxes.

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How to Calculate Nanny Taxes

","

","

Calculating the nanny tax will require you to determine the wages paid to your nanny and apply the correct tax rates. Here’s a step-by-step breakdown:

","$7d","

Reporting and Paying Nanny Taxes

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Once you have calculated the nanny taxes, you must follow the proper steps to report and pay them. The IRS requires household employers to file a Schedule H (Household Employment Taxes) with their personal federal income tax return. This form helps report all of the Social Security, Medicare and FUTA taxes you owe for your nanny.

","

Throughout the year, you will also need to withhold the correct amounts from your nanny’s paycheck and pay those taxes on a regular basis, typically quarterly. Many employers choose to work with a payroll service that specializes in household employees to manage these withholdings and payments, ensuring compliance with all tax laws.

","

For state unemployment taxes, you may be required to file a separate return with your state’s tax authority, so be sure to check local rules. Some states may require quarterly filings, while others may only need an annual return.

","

Exceptions to the Nanny Tax and Special Considerations

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Not every household worker is subject to the nanny tax. There are some exceptions to be aware of:

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Family members: If your nanny is a close relative (and childcare is not their primary occupation), such as your child (under age 21), spouse or parent, you may not be required to pay the nanny tax.
Employees under 18 years of age: If your nanny is under the age of 18 at any time during the year, you may not need to withhold Social Security and Medicare taxes, unless the housework performed is their principal occupation.
Wages below the threshold: If you pay your nanny less than the annual threshold set by the IRS ($2,700 in 2024), you are not obligated to withhold or pay Social Security and Medicare taxes. However, you may still be responsible for unemployment taxes, depending on state laws.
Non-cash payments: If you provide your nanny with non-cash benefits, such as room and board, these can often be excluded from wages for the purpose of calculating taxes.

","

It’s also important to remember that the nanny tax applies to all household employees, not just nannies. If you hire a housekeeper, gardener or any other worker in your home, you may need to follow similar tax rules.

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Penalties for Non-Compliance

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Failing to pay or properly report nanny taxes can lead to several serious consequences. The IRS may impose back taxes, interest and fines on unpaid amounts if household employers do not fulfill their tax obligations. In addition to these financial penalties, employers may also face additional legal fees and potential audits.

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Employers who attempt to pay their nanny “under the table” to avoid taxes are at particular risk. If discovered, this could result in more severe penalties, including the payment of back taxes and interest, plus fines for tax evasion. In some cases, employers might be held liable for unpaid Social Security and Medicare taxes owed by the nanny, further increasing the financial burden.

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To avoid these issues, it’s important to handle all tax matters related to household employees transparently and in accordance with federal and state regulations.

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Bottom Line

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","

Understanding and managing nanny taxes is an important part of hiring household employees. By familiarizing yourself with the tax requirements and learning how to handle withholdings for Social Security, Medicare and unemployment taxes, you can meet your obligations as an employer. Knowing the thresholds and exceptions helps ensure that you’re in compliance with federal and state laws. While it may seem complex at first, taking the necessary steps to calculate, report and pay these taxes can help you avoid penalties and maintain a professional, legal arrangement with your household employees.

","

Tax Planning

","$7e","

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The Federal Solar Tax Credit, also known as the Investment Tax Credit (ITC), provides an up to 30% tax credit for the costs of adopting solar energy in the United States. The credit applies to new solar photovoltaic (PV) systems and expansions of existing ones, reducing the overall installation cost by nearly a third. This credit not only supports environmental sustainability but also offers generous financial benefits, contributing to the growing adoption of solar energy across the country.

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If you’re looking for assistance with this tax credit or any others, a financial advisor may be able to help you optimize your tax strategy.

","

What Is the 2025 Federal Solar Tax Credit?

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The 2025 Federal Solar Tax Credit, officially known as the Investment Tax Credit (ITC), is a financial incentive for adopting solar energy in the United States. This dollar-for-dollar credit allows homeowners and businesses to deduct up to 30% of the cost of installing a solar energy system from their federal taxes. By reducing the upfront cost of solar installations, the solar investment tax credit makes renewable energy more accessible and affordable.

","

The up to 30% solar investment tax credit is set to remain in place through 2032 following a recent extension of the ITC, providing a long-term incentive for adopting solar energy. After 2032, the credit is scheduled to decrease gradually. This extended timeline gives homeowners and businesses more time to plan and implement solar projects, but the planned decrease of the credit amount incentivizes early action.

","

How to Qualify for the Tax Credit

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This credit applies to both residential and commercial properties, allowing a wide range of property owners to benefit from the incentive. Eligible systems include solar photovoltaic (PV) systems, which convert sunlight into electricity.

","

To qualify, the solar energy system must be installed and operational within the 2024 calendar year. The credit covers a comprehensive array of expenses related to the installation, including the cost of:

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Solar panels
Inverters
Racking
Wiring
Other necessary equipment
On-site preparation
Assembly
Installation
Permitting, inspection and developer fees
Energy storage devices
Sales tax on eligible expenses

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Qualifying for the 2025 solar investment tax credit also involves several key criteria:

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Completion Date: The solar energy system must be completed and operational in 2025. Projects that are still under construction or planned for future years do not qualify for the 2025 credit.
Property Type: The credit is available for both residential and commercial properties. This includes primary residences, secondary homes and businesses. However, it does not apply to rental properties that the taxpayer doesn’t live in or homes used solely for business purposes.
Ownership: To claim the credit, the taxpayer must own the solar energy system. Leasing a system or entering a power purchase agreement (PPA) does not qualify for the ITC. The owner of the system can claim the credit, whether they paid for it upfront or financed the purchase.

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How to Claim the Tax Credit

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","

Claiming the 2025 solar investment tax credit is a straightforward process, primarily involving filing your federal tax return. Here are the steps:

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Benefits of the 2025 Federal Solar Tax Credit

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The 2025 Federal Solar Tax Credit, or Investment Tax Credit (ITC), provides both personal and environmental benefits, making it a compelling option for both homeowners and businesses. Personal Financial Benefits

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The 30% tax credit effectively lowers the overall expense of adopting solar technology, making solar energy more affordable and accessible to a wider range of property owners. Installing solar panels can also lead to substantial long-term savings on energy bills.

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By generating your electricity, you can reduce or even eliminate your reliance on the grid, leading to lower monthly utility costs. In some cases, homeowners can even sell excess electricity back to the grid, creating an additional income stream.

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1. Increase in Property Value

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Investing in solar energy can increase the value of your property. Studies show that homes equipped with solar energy systems tend to sell at higher prices compared to those without. Buyers are increasingly valuing energy efficiency and sustainability, making solar-equipped homes more attractive in the real estate market. This increase in property value can provide an additional financial incentive for homeowners to invest in solar energy.

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2. Environmental Benefits

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Solar energy is a clean, renewable resource that produces far fewer greenhouse gas emissions compared to fossil fuels. By transitioning to solar power, homeowners and businesses can help mitigate climate change and reduce their carbon footprint.

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Using solar energy instead of fossil fuels also reduces air pollution, which can have a direct positive impact on public health. Traditional energy sources, such as coal and natural gas, release harmful pollutants into the air, contributing to respiratory problems and other health issues. By reducing reliance on these sources, solar energy helps improve air quality and public health.

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Bottom Line

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The 2025 Federal Solar Tax Credit allows homeowners and businesses to invest in solar energy and save money along the way. By providing substantial financial incentives, the solar investment tax credit reduces the upfront costs of solar installations. The benefits extend beyond immediate financial savings, contributing to increased property value, long-term energy cost reductions and environmental advantages. This incentive not only supports individual property owners in their transition to renewable energy but also plays a vital role in stimulating the renewable energy industry.

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Tips for Tax Planning

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A financial advisor can help you plan your overall tax strategy, including any tax credits you may be eligible for. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

","

Tax credits can significantly reduce the amount you owe Uncle Sam, so don’t overlook any 2025 tax credits you may be eligible for. Check out this guide to 2025 tax credits to make sure you don’t miss any.

","

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