Excerpts from “Ask and Expert” – Tax Edition

Here is a sample of some of the submitted Ask an Expert tax questions from 2014:

Please keep in mind when reviewing these responses that it is not the role of the Solar Outreach Partnership to provide legal or tax advice, and nothing herein should be construed as such. These responses are provided for educational purposes only, and should be verified by experienced legal counsel before any decisions or actions are taken.

Question: What components of a BIPV system qualify for the FITC and MACRS (assuming it’s a commercial project)?  EG. If BIPV is integrated into a curtainwall, does the curtainwall framing (holding the BIPV modules) qualify?  Or if the PV is integrated into a parking canopy that was built to support the PV, does the canopy structure qualify?

Answer: The greatest insight we have into curtain wall equipment eligibility comes from IRS Private Ruling Letter 201043023, which provides a ruling on the elements of the purchase price of a PV curtain wall that constitute energy property under Section 48 of the Internal Revenue Code (i.e., the federal business energy investment tax credit). The text of the letter notes that while “structural components” normally do not qualify as eligible property, the IRS has provided an exception that components which are “so specifically engineered that it is in essence part of the machinery or equipment with which it functions”, will be eligible. Though the list of component parts included in the original letter was redacted in the public version, the letter does note that these “various component parts…are directly involved in the production of electricity through the use of solar energy” and are thus eligible. Given this, it seems likely that the curtain wall framing would be eligible, provided these components are “specifically designed and engineered” for a system producing solar energy.

Parking canopies may or may not qualify as eligible equipment. These structures are normally eligible when the solar energy system is designed primarily with electricity generation in mind and other uses, such as providing shade or shelter, are incidental.

Question: Can the Federal ITC be leveraged by individual participants for a community owned solar project?

Answer: The structure of community solar projects can vary significantly and so it’s difficult to give an answer in general terms without knowing the specifics of the project. Many community solar projects are organized as Special Purpose Entities, in which community members effectively create and invest in a business, which operates the solar project. In these situations, it can be difficult to realize the full value of the investment tax credit due to IRS rules on passive income, and there may be limits on the number of investors able to participate in a program due to securities regulations. There are several possible workarounds to this problem, including partnering with an investor with a larger tax appetite who will own the system for tax purposes. NREL has developed a review of some of the possible ownership arrangements for community solar, which is available at http://www.nrel.gov/docs/fy11osti/49930.pdf.

Question: I am considering installing a rooftop solar PV system on my residence. My local utility offers an incentive of $0.15/kWh for five years.  This is not buying the electricity; I keep the electricity with net metering.  Will this incentive affect my 30% federal tax credit or be taxable income? If the incentives are taxable, would I be able to take depreciation on my investment?

Answer:

  1. Yes, your utility incentive is considered taxable income, because it’s an increase in your adjusted gross income (AGI). Thus, you will have to pay taxes on it.
  1. No, your incentive will not affect your investment tax credit, because the incentive itself is not a tax credit. The only time when a tax credit can be reduced is when you apply a state tax credit to the project as well, and since the state tax credit is considered a form of income for your federal taxes, the amount you can claim on your federal taxes is thus reduced.
  1. No. The Modified Accelerated Cost Recovery System (MACRS) depreciation (also known as “accelerated depreciation” only applies to business energy property, and thus is only applicable to one’s corporate tax burden. Thus, you cannot take depreciation on the investment. On the other hand, it is possible you might benefit from the solar installer’s taking of accelerated depreciation if the system is third-party owned, but you will not benefit from it yourself unless it is considered the property of a business, and thus pays federal corporate taxes.

Question: Can I get a 30% federal tax credit on a solar powered attic fan installed on a rental condo?

Answer: The Energy Star website includes an FAQ which addresses this specific question about solar-powered attic fans. They explain that the solar portion of the attic fan qualifies for the tax credit, but the rest of the fan assembly does not. They advise that the installer should separate out the cost of the solar panel from the rest of the product, and the customer can calculate their tax credit based on that portion of the cost.

If the installer cannot separate out the cost of the solar panel, a reasonable approach could be to compare the cost of the solar-powered attic fan to that of a comparable non-solar attic fan. That difference in cost may be assumed to represent the cost of the solar panel in the solar-powered attic fan.

Question: If a person owns a rental home in California and rents and lives a home in another state, but plans on moving into the rental home in 2017 can they get solar now for the rental home and be eligible for the federal tax credit now?

Answer: If someone installs a solar PV system on a rental home they own prior to Dec. 31, 2016, they are eligible to receive the federal tax credit, even if this is not their primary residence and they live out-of-state. For more details on the federal tax credit, you can check out the Database of State Incentives for Renewables and Efficiency: http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US37F&re=1&ee=1

Question: Is there a database of solar-relevant IRS rulings I should refer to for future questions?

Answer: I don’t know of a database other than LexisNexis or Westlaw, which are not free…There is the Journal of Tax Credits though: http://www.novoco.com/journal/

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