08 Jun Do Solar Panels Save You Money and Help Advance the Planets Well Being? 1 Useful Example.
Solar Panel Expenses qualifying for Tax Credits. Do Solar Panels Save You Money and Help advance the Planets well Being? 1 USeful Example.
Some great clients in Colorado have decided to install solar panels in their home, which will cost around $70,000. However, they were advised to replace their 17-year-old roof prior to installation, which will add an extra $30,000 to the overall cost. This is a necessary initial expense for the successful installation of the system.
Is it possible to factor in the price of the brand-new roofing system into the $30 investment tax credit (ITC)?
Can a tax credit be claimed for the installation of a solar system in the second home being built in Quail Creek retirement community in Green Valley, AZ? The solar system, which costs $22K and does not include batteries, is a straightforward installation.
Re: Primary residence roof replacement for Colorado principal residence structurally required for solar installation
The total cost of replacing a roof cannot be claimed for the residential energy credit. However, a portion of the cost of upgrading the roof may be eligible according to the instructions of Form 5695 Page 1- https://www.irs.gov/pub/irs-pdf/i5695.pdf
Loaded with the mind-numbing double negatives, the instructions state that as follows:
Qualified solar electric property costs are costs for property that uses solar energy to generate electricity in your home in the United States. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed.
Some solar roofing tiles and shingles serve the function of both traditional roofing and solar electric collectors and thus perform the functions of solar electric generation and structural support. These solar roofing tiles and solar roofing shingles can qualify for credit. This contrasts structural components such as a roof’s decking or rafters that serve only a roofing or structural function and thus do not qualify for the credit. The home doesn’t have to be your main home.
If you’re installing solar panels and need to reinforce your roof, you may be eligible for a credit on the component pieces used for reinforcement. However, the cost of the entire new roof is not eligible for credit. To ensure you receive the proper credit, make sure your installer specifies any additional items added specifically for the solar panel installation on your latest roof.
Re: Arizona Property Solar installation
A “qualified solar electric property expenditure” is a property expense that involves using solar energy to produce electricity for a primary or principal residence located in the United States and used by the taxpayer.
We need to drill down and understand the nuanced differences between IRC 25D (Residential Clean Energy Credits) & IRC 25C (Energy Efficient Home Improvement Credits) and how these credits are asserted on IRS Form 5695.
- The instructions for IRS Form 5695 must be further clarified because they state that the house doesn’t need to be your main home. However, the instruction set does not differentiate between IRC 25C and 25D.
- Did you know that instructions regarding tax forms are not considered ‘substantial authority’ and cannot be used to defend a position taken on a tax return? Instead, the US Tax Code and Treasury Regulations, along with IRS Notices and Revenue Procedures, are considered ‘substantial authority’.
The IRS released Notice 2013-70 with FAQs explaining what “second home means” for residential energy tax credit purposes.
The notice provides additional Q&A guidance on specific expenditures that may or may not qualify for the credit, which is claimed on Part II of Form 5695 (Residential Energy Credits) and carried to Schedule 3 of Form 1040, line 5.
“FAQ-6: Are the credits available for improvements to a second home (for example, a vacation home or an investment property)?
A-6: Improvements made to a second home are not eligible for the credit under § 25C (Energy Efficient HomeImprovementCredit). Section 25C(c) and (d) require qualified energy efficiency improvements and residential energy property to be installed in or on a dwelling unit owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of § 121).
Concerning the credit under § 25D (Residential Clean Energy Credit), fuel cell property credits are unavailable for second homes. Section 25D(d)(3) requires fuel cell property to be installed on or in connection with a dwelling unit that is used as the taxpayer’s principal residence (within the meaning of § 121).
However, a taxpayer may claim a § 25D credit for other qualifying properties described in § 25D that are not fuel cell properties (solar electric property, solar water heating property, small wind energy property, and geothermal heat pump property) installed in or on a dwelling unit used as a second home or a vacation home by the taxpayer.”
Improvements to a second home are not eligible for credit under IRC § 25C. Section 25C(c) and (d) require qualified energy efficiency improvements and residential energy property to be installed in or on a dwelling unit owned and used by the taxpayer as the taxpayer’s principal residence within the meaning of IRC § 121.
NOTE: THE PRINCIPAL RESIDENCE OF A TAXPAYER AS PER IRC 121 IS DETERMINED BY TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES, SUCH AS THEIR PLACE OF EMPLOYMENT AND MAILING ADDRESS FOR BILLS AND CORRESPONDENCE, BUT ORDINARILY WILL BE THE PROPERTY WHERE THE TAXPAYER SPENDS THE MAJORITY OF THEIR TIME. TREAS. REG. § 1.121-1(B).
**See Page 5 of Fact Sheet as of 2022- https://www.irs.gov/pub/taxpros/fs-2022-40.pdf
So, the (unreliable) instructions for IRS Form 5695 conflict with the (reliable) reference in Notice 2013-70 (Q&A 6) regarding tax credit application as it pertains to the terms main home, principal residence, and primary residence. Also, concerning the credit underIRC § 25D, fuel cell property residential energy credits, including solar power, are unavailable for second homes.
Section 25D(d)(3) requires fuel cell property to be installed on or in connection with a dwelling unit that is used as the taxpayer’s principal residence (also within the meaning of § 121).
However, a taxpayer may claim an IRC § 25D energy credit for other qualifying properties, not fuel cell properties installed in or on a dwelling unit used as a second home or a vacation home by the taxpayer.
And finally, FWIW: Specific guidelines on property qualifying for the tax credit can also be found at www.energystar.gov under the keyword “Tax credits for residential energy efficiency.”
So if you’ve made it this far, my read on all this is that the following costs are eligible for the IRC 25D Residential Clean Energy credit:
- Roofing costs specific to supporting Solar installation on the Colorado Property
- Solar panel costs for the Colorado property, including installation
- Fuel Cell Costs for the Colorado Property
- Solar panels costs for the Arizona Property, including installation
What does not qualify for the credit include:
- Complete roof replacement for the Colorado property
- Fuel cell (battery) costs for the Arizona property
For more on Solar Panel Expenses Qualifying for Tax Credits, contact me directly.
DO SOLAR PANELS SAVE YOU MONEY AND HELP ADVANCE THE PLANETS WELL BEING? 1 USEFUL EXAMPLE.
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