Federal Tax Credit - starting in 2019 and completing in 2020

[pvk427]

I am planning to get solar systems installed at my business as well as home. I do understand that currently the federal tax credit is 30% which will be dropping to 26% in 2020. Since it is late 2019, and since I still have not started permit process yet, chances are we may not get the system installed / turned on by Dec 31st.

- What happens if the installation is not completed by Dec 31st. Say total project cost is $40k and I paid $30k till Dec 31st. Do I get 30% credit on money spent ($30k) and 26% on rest. Since the system is turned on, do I get 26% on total cost ($40k). Or since I started the project in 2019, I get 30% of the total $40k. An installer told me that as long as I put down a deposit of 10% with them, I qualify for full 30% on the entire cost.

- What if my design that I signed up for is say 20KW and after I start the project, I expand it to 40KW system?

Thanks in advance for any inputs.

[J.P.M.]

See seia.org for what I believe to be a reasonably accurate summary of answers to most of your questions except maybe for what qualifies/doesn't if the project scope changes (probably after 12/31/2019 ?).

But, be cautious about taking anything you find on a public forum such as this or an industry biased site such as the SEIA site too seriously. Same for an installer w/money to be gained but no tax liability for lying to you.

Best to see your qualified tax professional and/or the IRS for better reliability/interpretation.

[organic farmer]

I have two 'solar systems' on my farm. [a photovoltaic electrical power system, and a solar thermal heating system]

One year I spend X amount on installing the first system, and our CPA had us take some much of the tax credit that year.

The next year I spent some more to finish that installation, so we took some more of the tax credits.

Then we began depreciating the total cost of the entire system. One-seventh of the total cost each year for seven years.

Then a few years later, I installed a 'solar thermal' system to heat our farmhouse, and we began depreciating that system's entire cost, one-seventh each year.

[pvk427]

See seia.org for what I believe to be a reasonably accurate summary of answers to most of your questions except maybe for what qualifies/doesn't if the project scope changes (probably after 12/31/2019 ?).

Thank you. Your reference made it easy. Here is a summary and my understanding from here:
- The credit rate is 30 percent for projects which begin construction by December 31, 2019
- Notice 2018-59 provides two methods a taxpayer may use to establish that construction of a qualified solar facility has begun for purposes of claiming the solar investment tax credit (ITC): (1) starting physical work of a significant nature (Physical Work Test), or (2) meeting the so-called Five Percent Safe Harbor test
- (I am unclear about this) it is important to note that the change to a beginning of construction standard was not made to the section 25D residential credit, so individual taxpayers claiming the residential solar ITC must still have their projects placed in service before they can claim the credit.

i. Does this mean that for Residential installs, the install/approval has to be finished by Dec 31st in order to claim 30% credits.
ii. If I spend $5k in 2019 and another $15k in 2020 to have the project in service, do I clam $5k in 2019 Tax returns and the rest $15k in 2020 returns.

Thanks again.

[Paul Land]

Credit is on time of purchase not install time. If your fine with pre-paying go ahead and "sign and drive"

[SunEagle]

Credit is on time of purchase not install time. If your fine with pre-paying go ahead and "sign and drive"

I wonder how many Contractors will use the "date deadline" to get their money up front but not provide a complete installation.

[J.P.M.]

Thank you. Your reference made it easy. Here is a summary and my understanding from here:
- The credit rate is 30 percent for projects which begin construction by December 31, 2019
- Notice 2018-59 provides two methods a taxpayer may use to establish that construction of a qualified solar facility has begun for purposes of claiming the solar investment tax credit (ITC): (1) starting physical work of a significant nature (Physical Work Test), or (2) meeting the so-called Five Percent Safe Harbor test
- (I am unclear about this) it is important to note that the change to a beginning of construction standard was not made to the section 25D residential credit, so individual taxpayers claiming the residential solar ITC must still have their projects placed in service before they can claim the credit.

i. Does this mean that for Residential installs, the install/approval has to be finished by Dec 31st in order to claim 30% credits.
ii. If I spend $5k in 2019 and another $15k in 2020 to have the project in service, do I clam $5k in 2019 Tax returns and the rest $15k in 2020 returns.

Thanks again.

You're most welcome.

If you are asking me, I'm unqualified to offer more than an ignorant opinion on tax matters. However, if it was me, even though I'm generally of the opinion that fortune favors the bold, it also slaughters the foolish and lazy. So, I'd seek out a CPA who does taxes and is familiar with in/outs of the U.S. (and state for that matter) tax code as it impacts and applies to solar installations and get an opinion that the IRS will not laugh at if/when it comes to questions or an audit, and, even though not intimidated by the IRS, I'd still take my checkbook to the audit.

I'd also for sure not take any tax or financial advice I got on a chatroom from anonymous sources as gospel if for no other reason than I usually get what I pay for or less.

[Ampster]

I wonder how many Contractors will use the "date deadline" to get their money up front but not provide a complete installation.

I am sure many will. In my case, because of delays with installing a new service panel my install took 15 months. The solar system was operational during that time but I got no NEM credit. I charged cars, heated water and ran the AC during the day and never paid the contractor more than the initial $1,000 deposit. In retrospect according to my CPA I could have taken the credit in 2017. I actually took it in 2018 before the contractor was paid the balance in 2019. I did put a copy of my generation logs and the contract in my 2018 tax file.

[SunEagle]

I am sure many will. In my case, because of delays with installing a new service panel my install took 15 months. The solar system was operational during that time but I got no NEM credit. I charged cars, heated water and ran the AC during the day and never paid the contractor more than the initial $1,000 deposit. In retrospect according to my CPA I could have taken the credit in 2017. I actually took it in 2018 before the contractor was paid the balance in 2019. I did put a copy of my generation logs and the contract in my 2018 tax file.

I feel bad that it took so long to get your system installed and that you did not get the full NEM credit. At least you were able to get some "free" charging during that time.

I believe most good Contractors will provide a quality install even if you pay up front. But there are some that have less scruples and will try to get away with whatever they can.

[J.P.M.]

I wonder how many Contractors will use the "date deadline" to get their money up front but not provide a complete installation.

When I was a peddler, I tried to play heads' up ball and look at every turn of events, planned or otherwise as a potential marketing opportunity. In one sense, it came down to a matter of how far to twist and convolute the truth and still be able to look in the mirror.

[Ampster]

I feel bad that it took so long to get your system installed and that you did not get the full NEM credit. At least you were able to get some "free" charging during that .......

No worries. Initially it was because delays at the County and PG&E relating to the fires in Sonoma County in late 2017. I was traveling a lot during 2018 and didnt follow up as much as I should have. in the meantime staff turnover caused more delays when they discovered they needed to trench for the new service. I actually got a call from the CEO who gave me a $1,000 discount for my troubles.

[RShackleford]

The credit rate is 30 percent for projects which begin construction by December 31, 2019

That's what I thought too, and I spent about $2000 (well over 5%) in 2019 on a DIY installation which I completed in 2020. So I was hoping to take a 30% credit on the entire amount (including what I spent in 2019) on my 2020 tax return. However, the 2020 Form 5695 offers no option to claim 30% instead of 26%.

[Ampster]

That's what I thought too, and I spent about $2000 (well over 5%) in 2019 on a DIY installation which I completed in 2020. So I was hoping to take a 30% credit on the entire amount (including what I spent in 2019) on my 2020 tax return. However, the 2020 Form 5695 offers no option to claim 30% instead of 26%.

Is another option to refile 2019 and take the larger credit for work started in 2019? You have history and facts in your favor if they support that. Those are the kind of hypotheticals that I ask my tax guy. He can usually give me the pros and cons and I make the decision based on my needs.

[RShackleford]

Is another option to refile 2019 and take the larger credit for work started in 2019? You have history and facts in your favor if they support that. Those are the kind of hypotheticals that I ask my tax guy. He can usually give me the pros and cons and I make the decision based on my needs.

Yeah, I thought I was told pretty clearly, a year ago, that no credit could be taken until the system as put into service. Also, re-filing 2019 would only save me (30%-26%)*$2000 = $80, probably not worth the trouble of the paperwork and the increased risk of audit.

[Ampster]

.....$80, probably not worth the trouble of the paperwork and the increased risk of audit.

Probably not. More importantly, how is the structure holding up to the weather?