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  • Federal Tax Credit

    My system installation is starting on Monday for the panels. I have to have some trenching done in order to upgrade my panel so that may take a week or so longer. My question is, if the system is fully installed and I get the invoice from the solar company by the 31st of Dec, can I claim in on my 2013 taxes? Or does the system actually have to be turned on? The reason is SDG&E may not get out in time with the holiday at the end of the month. Does SDG&E notify the IRS or do I just fill out form 5695?

  • #2
    Good question. I'm having the same concern since my installation keep delay and might not have the SCE turn on the net meter before Dec 31th. I'm sure the system will be up and ready before Dec 31th since my installation start on next Monday Nov 25th.

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    • #3
      This is what it says in form 5695. My interpretation would be that as long as you have a paid invoice dated on or before 12/31/2013, then you should be able to claim it. The utility company does nothing to inform the IRS of the turn-on date as far as I know.

      Costs. For purposes of both credits, costs are treated as being paid
      when the original installation of the item is completed, or, in the case of
      costs connected with the reconstruction of your home, when your
      original use of the reconstructed home begins. For purposes of the
      residential energy efficient property credit only, costs connected with
      the construction of a home are treated as being paid when your original
      use of the constructed home begins. If less than 80% of the use of an
      item is for nonbusiness purposes, only that portion of the costs that is

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      • #4
        Originally posted by Volusiano View Post
        This is what it says in form 5695. My interpretation would be that as long as you have a paid invoice dated on or before 12/31/2013, then you should be able to claim it.
        Not quite. It needs to be installed and not a paid invoice. Actually, it doesn't need to be paid for, either. Many get creative on what constitutes being "installed". You are probably within the intent of the regulation if the panels are in place and you are awaiting the wiring to be completed.

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        • #5
          Originally posted by GridGrants View Post
          Not quite. It needs to be installed and not a paid invoice. Actually, it doesn't need to be paid for, either. Many get creative on what constitutes being "installed". You are probably within the intent of the regulation if the panels are in place and you are awaiting the wiring to be completed.
          It is presumed that you don't pay unless it is completed.

          There are many different ways one can interpret what is being said on the form. But for the purpose of answering the OP's question, the answer is that qualification for the tax credit is NOT dependent on the turn-on date.

          If I were the OP, I would make sure that the installation is completed 100% (not just the panels but even the wiring and inverter installation being completed along with everything else), and I would also make sure that I have a paid invoice dated on or before 12/31/2013 as well.

          One may interpret what is said on the form ("costs are treating as being paid when the original installation of the item is completed") to mean that you don't need to have a paid invoice, but only need to have the installation completed. But I would ask how would you "prove" the date of completion? Maybe you can get the installer to write up a statement to certify the date of completion. But if you can help it, why not make sure you have a paid invoice instead? To me, a paid invoice is more valid than a statement of completion.

          I know some installers may require partial payment upon completion but only complete payment upon the turn-on date. My installer doesn't even require anything but $1K down upon signing and complete payment only upon the turn-on date after everything is approved and the utility actually turns on the service. But if I were in the OP's situation, I would try to make sure I have a paid invoice by 12/31/2013 to remove any ambiguity in case I get audited.

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          • #6
            Originally posted by Volusiano View Post
            I would make sure that the installation is completed 100% (not just the panels but even the wiring and inverter installation being completed along with everything else) I would try to make sure I have a paid invoice by 12/31/2013 to remove any ambiguity in case I get audited.
            The form is pretty clear:

            "costs are treated as being paid when the original installation of the item is completed"

            It does not require the "system" be completed. Just the installation of the "item". I have checked with multiple tax accountants on that one. Nobody has had any problem with claiming an item is installed when it is physically on the site and in its attached state. I am not a tax accountant and of course everybody should consult with their own tax advisors.

            It is also true that for the purposes of this form, payment is not required. "Cost" is determined by installation and not by payment. It would be a shame if someone financing a system felt they did not qualify and only fully paid for systems got a credit. Once more, confer with your tax advisor for your specific details. You also need to be aware that various subsidies or rebates you receive may not count for the credit. Sometimes you can take the credit on that money, but you will receive a 1099 for the amount and you will need to include it as other income. Not trying to teach every scenario here. Just so people know there are enough nuances that a consult with a professional is recommended.

            I appreciate your conservative nature, but there are options and a hard rule of a fully installed system that is paid in full is not a requirement.

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            • #7
              Originally posted by GridGrants View Post
              I appreciate your conservative nature, but there are options and a hard rule of a fully installed system that is paid in full is not a requirement.
              After your elaborated clarification, I would not argue with you on this point. And one should indeed consult with one's tax advisor. But I would venture to say that whatever their interpretation is on their qualification, they should make sure that clear documentation of the state of their system exists to support their interpreted qualification in case they get audited. If they believe that just having the panels installed only is good enough for qualification, they should at least get the installer to certify the panels' date of installation so they have something to show the IRS if they get audited.

              Comment


              • #8
                Originally posted by Volusiano View Post
                After your elaborated clarification, I would not argue with you on this point. And one should indeed consult with one's tax advisor. But I would venture to say that whatever their interpretation is on their qualification, they should make sure that clear documentation of the state of their system exists to support their interpreted qualification in case they get audited. If they believe that just having the panels installed only is good enough for qualification, they should at least get the installer to certify the panels' date of installation so they have something to show the IRS if they get audited.
                The technical completion date according to the government is the "in service" date for the solar system. That is the term the government uses and likely how the IRS interprets it. This generally means when the system is actually up and running and producing energy.

                I would NOT assume that just because you have them mounted on your roof that that constitutes a completed system. The IRS uses "in service " for a number of tax laws, including fixed assets, auto deductions for business use, rental properties, etc. For instance, if you own a property and live there for your residence for 3 months and then convert it to a rental , the "in service" date as an investment property is April 1 for purposes of calculating depreciation allowed in the first year.

                That said, I tend to doubt that IF you are audited and they discover that you paid your contractor in full by 12/31 but sdge didn't give you the approval until 1/10 that you'd be forced to remove the deduction and reapply to 2014. But that would be up to the auditors discretion I suppose. The other key here is you cannot claim a credit or deduction on ANYTHING unless it's actually paid in the tax year it's for so I would not suggest attempting to claim it if , say, you didn't pay the balance until 1/10/14.


                I was in a similar situation but luckily had my install date moved up a month from December to Last week and the system is in place and tested for an hour and approved by the city inspector. Then it was shut off . I'm waiting for sdge approval to turn it on. In the meantime, the contractors job is complete and they have already invoiced the final payment . Sdge will be letting us know within 10 biz days and the day I turn it on is what I believe to be the true in service date.

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                • #9
                  I do not know the various alternatives for financing but if you finance the purchase through a HELOC or some unsecured loan, that has no bearing on the in service date. Usually the IRS won't care if you paid cash or financed.

                  However, Again, IF you were audited and claimed a $9,000 tax credit on a $30,000 on a system that was flipped on 12/31/13 but you didn't actually pay for until 2014 because you didn't come up with the money until later, then they might have issue with that. (Although I find that scenario unlikely because the contractor would probably disable it temporarily if you have refused to pay or something like that.)

                  Just like any expenses, you can't claim a deduction for unless you actually have paid for it. For example, prop tax is on dec 10th, but you aren't allowed to take that deduction in 2013 if you don't pay until January.

                  But again, the burden of proof is on you when you get audited, so they may not care if you have shown that they were installed and just pending approval from the utility. There is no direct communication between them and sdge so at worst they'd ask you to supply a bill or other document showing the first day your net metering actually began.

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                  • #10
                    Originally posted by bando View Post
                    The technical completion date according to the government is the "in service" date for the solar system. That is the term the government uses and likely how the IRS interprets it..
                    That is simply not true. The terminology is clear on the Form 5695. There is no mention of an "in service date".

                    Originally posted by bando View Post
                    The other key here is you cannot claim a credit or deduction on ANYTHING unless it's actually paid in the tax year it's for so I would not suggest attempting to claim it if , say, you didn't pay the balance until 1/10/14...
                    That is also completely false and clearly stated in Form 5695:

                    "costs are treated as being paid when the original installation of the item is completed"

                    You are claiming that no financed or leased systems qualify for the program and this is simply not true! I don't want to appear overly harsh, but this is a lot of misinformation from you. This topic should probably just be concluded with check with your tax advisor to see how the regulations apply for your specific situation. The basis is "installed" and not "in service" and the allowed "cost" for this program is deemed to occur at time of installation and not when you actually make payment.

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                    • #11
                      This is important enough to people that it should be addressed again.

                      Originally posted by bando View Post
                      IF you were audited and claimed a $9,000 tax credit on a $30,000 on a system that was flipped on 12/31/13 but you didn't actually pay for until 2014 because you didn't come up with the money until later, then they might have issue with that..
                      They will not have an issue with that. It only requires installation and not payment.

                      Originally posted by bando View Post
                      Just like any expenses, you can't claim a deduction for unless you actually have paid for it...
                      Not how this program works. Directly from Form 5695:

                      "costs are treated as being paid when the original installation of the item is completed"

                      Originally posted by bando View Post
                      they may not care if you have shown that they were installed and just pending approval from the utility. There is no direct communication between them and sdge so at worst they'd ask you to supply a bill or other document showing the first day your net metering actually began.
                      This is not true. It only requires being installed and not being in service.

                      Don't fail to get what is due to you. Ask your tax advisor. You can also carry the credit forward until December 31, 2016 so file Form 5695 even if you cannot use the credit this year. Any unused portions carry forward AT LEAST through 2016. You may also file an amended return for past years if you did not claim the credit and you qualified.

                      Comment


                      • #12
                        I am a licensed California CPA, and this is how I would advise my clients as well as how I would do my own taxes. I'm not here to tell you how to do yours, you should consult your own tax advisor if you are not sure what to do. but this is my interpretation, you don't have to take it. No hard feelings!

                        The "in service" terminology is stated on energy.gov: http://energy.gov/savings/residentia...rgy-tax-credit

                        this term is used widely by the IRS and not only pertains to solar systems. For example, Business fixed assets cannot be depreciated until they have been placed in service. The quote from 5695 and energy.gov about expenses being paid with respect to installation date means ONLY that all
                        Costs are considered incurred in the year when it's done. Hence when you pay $1,000 deposit in one year but finish installation in the next year, your $1,000 is considered having been paid in the following year even if you have written a physical check in the prior year.

                        This is the same lingo they use for many types of expenses. Did you know that if you buy a piece of machinery in dec 2013 and it takes you 6 weeks to set it up before it's actually placed in service that you may not depreciate it until 2014? Yes, that is the same concept and therefore the same applies - the cost is treated as paid in 2014, even though you paid for it in 2013.

                        Again, I'm not here to tell you how to do yours. This is a special circumstance of someone waiting for he utility to allow them to turn in on. Most of the time this debate about timing is a non issue because the cutoff date is not near year end. But like I mentioned earlier, I think the chances during an audit of them saying no , you can't take that 30% in 2013 and have to wait for 2014 are pretty slim - but again it is up to the auditors interpretation .



                        And if you go to the bank and get a loan to pay for your system, the IRS doesn't care .
                        All that is relevant is the in service date. Getting a bank loan and paying from the loan proceeds for solar is the same as a cash purchase scenario.

                        I do not know what lease arrangements you are referring to, but in all the proposals we received there were leases , the lessor maintained ownership of the system and therefore they are the ones to take the credit not me!

                        Comment


                        • #13
                          Originally posted by bando View Post
                          I am a licensed California CPA, and this is how I would advise my clients as well as how I would do my own taxes. I'm not here to tell you how to do yours, you should consult your own tax advisor if you are not sure what to do. but this is my interpretation, you don't have to take it. No hard feelings!
                          Thank you for your analysis and for the warnings! If anyone chooses a more aggressive path that is their business and their potential sorrow.
                          [SIGPIC][/SIGPIC]

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                          • #14
                            Originally posted by russ View Post
                            Thank you for your analysis and for the warnings! If anyone chooses a more aggressive path that is their business and their potential sorrow.
                            You are very welcome and glad to give back what I can after all the help from members and moderators here. We are very excited about turning on our new system on in a few weeks !!

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                            • #15
                              Well good news is that we just received the official email and letter from sdge that we are good to go! So that was precisely 2 business days from the date the city inspector approved it. There is a formal letter attached regarding the system size and net metering commencement .

                              Thought the OP would be interested.

                              Contract signed 10/23
                              Installation 4 days 11/14-11/19
                              City inspection 11/21
                              Sdge approval 11/25

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