Has anyone ever had the IRS question the solar tax deduction ?

Asking for a friend .

Obviously a US centric question but with all the threads on what does/doesn’t count I’m wondering if anyone has been audited for the tax credit.

If so, was it a question of producing receipts, pictures, or an agent conducting an on site visit ?

Inquiring minds want to know.

And obviously the denotes humor in the first line. I’ve taken the credit in multiple years backed up with receipts and pictures.

JoeHam said:

Asking for a friend .

Obviously a US centric question but with all the threads on what does/doesn’t count I’m wondering if anyone has been audited for the tax credit.

If so, was it a question of producing receipts, pictures, or an agent conducting an on site visit ?

Inquiring minds want to know.

And obviously the denotes humor in the first line. I’ve taken the credit in multiple years backed up with receipts and pictures.

Click to expand...

They have some person at the IRS using satellite photos watching your every move as you mounted your panels.

I did see after 2024, there is a PIN number assigned to appliances such as heat pump water heaters, heat pump dryers and heat pumps that must be entered on the form. https://rsmus.com/insights/tax-aler...nergy-efficiency-home-improvement-credit.html

I just finished filing taxes. Those credits come in handy. My plan is to keep adding every year for tax purposes. One mini split installed in the house per year, first one was last year. Already added a heat pump water heater this year and currently in the process of finishing the second mini split. Will be adding more insulation and take that credit the year after.

As for my shop solar system, it will be fully depreciated as a capital expense.

As local farmers tell me, "If the government is handing out money, you should take it, because somebody else will".

Honestly comes down to integrity. Especially for an average earner who will never get audited in his life. If the average person lied, likely never to get caught.

I’m in the category where I’m highly unlikely to ever get audited in my life: work for someone else, earn enough to take a solar rebate, but not so much that I fall into a category where I will be flagged by the IRS.

I am wondering if my future solar deductions will raise a flag. I have an average size system installed on my house for last year, this year I upgraded the batteries by 10 kWh, and in the future I plan to double the system size. This will give me system twice the size of my typical local installation, so I am saving receipts for solar and all the other things like W2s. Also, all my deductible solar expenses are built by contractors so the receipts are straightforward.

Zwy said:

As for my shop solar system, it will be fully depreciated as a capital expense.

Click to expand...

Of course that is a deduction, not a tax credit.

Tax brackets typically determine which is more valuable FWIW.

Non solar related but may provide some insight from some one who has been audited a few times. Simply have receipts and be prepared to answer questions related to the original focus of the audit and dont be surprised if the audit expands. Depending who the arse is doing the interview, ie interrogation, just stay steady. The worst audit was with a women that started nice and after an hour of questions and receipts it was clear she was frustrated and she got personal for not finding anything wrong. At one point she asked "how do you afford to live". I controlled myself and politely told her I manage my finances always planning ahead. While saying that I was wanting to say "its none of your F'in business!!!"

My first solar install was in 2014. I have installed three complete systems and added components to most of them for a total of six or seven years of tax credits. I have not been audited yet. The last credit claim was for the tax year of 2022.

Related question: what is the bookkeeping write off period on the solar equipment?
5 years? 10 years?

LydMekk said:

Related question: what is the bookkeeping write off period on the solar equipment?
5 years? 10 years?

Click to expand...

It’s an immediate credit in the year it is installed and operational.

Again, in the US, no idea about Spain.

LydMekk said:

Related question: what is the bookkeeping write off period on the solar equipment?

Click to expand...

I evaluated capitalizing the equipment and taking the credit, versus expensing it and concluded it was better to just expense it and forego passing the credit on to me and my limited partner. Therefore I never looked into the correct period. My guess is that it is longer than ten years, at least for solar panels but perhaps ten or less for some inverters.

I understand the rules were updated to exclude any part of the roof or roofing structure.

Ampster said:

I evaluated capitalizing the equipment and taking the credit, versus expensing it and concluded it was better to just expense it and forego passing the credit on to me and my limited partner. Therefore I never looked into the correct period. My guess is that it is longer than ten years, at least for solar panels but perhaps ten or less for some inverters.

Click to expand...

Looks like 5 years but the immediate credit is probably better for most folks.

LydMekk said:

Related question: what is the bookkeeping write off period on the solar equipment?
5 years? 10 years?

Click to expand...

For a business? There are several ways such as ITC or PTC. It can also be a combination where there is bonus depreciation the first year with the remaining basis depreciated out 5 years or more using MACRS. The bonus depreciation used to be 100% in the first year but is now on a declining schedule. More information here. https://www.paradisesolarenergy.com...estment has,standard five-year MACRS schedule.

Follow up question: How long do you have to keep it in service?

Obvious: 1 day - if you sell the house

But what about upgrading? Product failure? Broken panels? I put in (storage, panels) today, get the tax credit, determine in a year or 2 it's underperforming, remove it, sell?, and re-install. What then?

plympton said:

Follow up question: How long do you have to keep it in service?

Obvious: 1 day - if you sell the house

But what about upgrading? Product failure? Broken panels? I put in (storage, panels) today, get the tax credit, determine in a year or 2 it's underperforming, remove it, sell?, and re-install. What then?

Click to expand...

For commerical/business install, the requirement is 5 years minimum if you take accelerated deductions from what I read. Less than 5 years and you will incur a penalty and have to pay some of the accelerated deduction back.

If you don't use accelerated deductions and simply use straightline depreciation, then you don't incur a penalty but you don't get to write off the remaining basis. No different than any other qualified business expense. There could be capital gains taxes incurred if you sell the property for more than the remaining basis.

Zwy said:

For commerical/business install, the requirement is 5 years minimum if you take accelerated deductions from what I read. Less than 5 years and you will incur a penalty and have to pay some of the accelerated deduction back.

If you don't use accelerated deductions and simply use straightline depreciation, then you don't incur a penalty but you don't get to write off the remaining basis. No different than any other qualified business expense. There could be capital gains taxes incurred if you sell the property for more than the remaining basis.

Click to expand...

Right - I get that. But what about the 30% solar/storage tax credit? You buy stuff, install it, get the credit, and then say, "Meh! Try again!" There's no depreciation schedule. It's, "OK, credit approved". But what if there's an audit? I'll have pictures to prove what I claim was in service that year, so I could show that, but year 2-6 - what then?

plympton said:

Right - I get that. But what about the 30% solar/storage tax credit? You buy stuff, install it, get the credit, and then say, "Meh! Try again!" There's no depreciation schedule. It's, "OK, credit approved". But what if there's an audit? I'll have pictures to prove what I claim was in service that year, so I could show that, but year 2-6 - what then?

Click to expand...

Are you referring to business or residential install?

Business is what my post was about. It is quite specific about the term.

Residential- well, if you take the credit and the IRS finds out you sold the items, then installed another and took that credit, they will want to know what the amount was that you sold the items for (capital gains) in an audit and you stand a good chance of an audit.

The IRS always knows everything has a value whether salvage or in perfect condition. When you personally buy and sell something, they want their taxes on the transaction if they can get it, especially if it involved tax credits. That is why you saw the ebay sellers getting 1099's that were also sent to the IRS reporting that income.

While you might possibly get away with attempting to scam the IRS on solar tax credits, if you get caught you might be Bubba's new GF in prison. Or they go back multiple years and don't allow any credits for those years due to abuse, you will be paying not only the credit back but penalty and interest which will be more than the credits/income tax. Plus most likely you get regular audits for years after.

You can be made The Example.

If the problem of fraud or abuse becomes large enough, the IRS will make it harder to claim the credits, similar to new rules on Energy Efficiency credits for appliances after this year. The IRS will require a manufacturer PIN number on the form to claim the credit. No PIN, no credit.

Zwy said:

Residential- well, if you take the credit and the IRS finds out you sold the items, then installed another and took that credit, they will want to know what the amount was that you sold the items for (capital gains) in an audit and you stand a good chance of an audit.

The IRS always knows everything has a value whether salvage or in perfect condition. When you personally buy and sell something, they want their taxes on the transaction if they can get it, especially if it involved tax credits. That is why you saw the ebay sellers getting 1099's that were also sent to the IRS reporting that income.

While you might possibly get away with attempting to scam the IRS on solar tax credits...

Click to expand...

I'm not talking about abuse or scam, just a realistic scenario - upgrading after a few years in service. I could realistically see myself upgrading to a 18k inverter from my 3k one, and swapping out the proprietary batteries for a PowerPro or 2. I could see replacing my 6 panels with professionally installed 20 when I get a new roof in a few years - or solar shingles.

I could take my existing setup to my cabin - where we get frequent outages. I could keep it to use as a backup to the backup, or sell it to reclaim some value. Each of these scenarios are realistic, and none are what I'd consider an abuse of the credit system. I'd be fine with making adjustments - I'm just curious if or where those rules are documented.

Mine that I took the credit for was installed by a contractor. Easy to prove if audited.
I have not gotten any DIY stuff finished, so I haven't tried for it. Seriously considering NOT going for the credit once it is complete as I don't want any headaches from a gun-wielding IRS thug. (Someone explain why any IRS agent should be armed with anything more than a calculator?)

SparkyJJO said:

Mine that I took the credit for was installed by a contractor. Easy to prove if audited.
I have not gotten any DIY stuff finished, so I haven't tried for it. Seriously considering NOT going for the credit once it is complete as I don't want any headaches from a gun-wielding IRS thug. (Someone explain why any IRS agent should be armed with anything more than a calculator?)

Click to expand...

plympton said:

I'm not talking about abuse or scam, just a realistic scenario - upgrading after a few years in service. I could realistically see myself upgrading to a 18k inverter from my 3k one, and swapping out the proprietary batteries for a PowerPro or 2. I could see replacing my 6 panels with professionally installed 20 when I get a new roof in a few years - or solar shingles.

I could take my existing setup to my cabin - where we get frequent outages. I could keep it to use as a backup to the backup, or sell it to reclaim some value. Each of these scenarios are realistic, and none are what I'd consider an abuse of the credit system. I'd be fine with making adjustments - I'm just curious if or where those rules are documented.

Click to expand...

If you do sell any panels or equipment, it would be best to report that it was sold and "show a price" received when sold. Having taken a credit, the IRS has the history that you had the panels/equipment because you took a credit.

As for keeping the panels/equipment, you can keep those for as long as you want. You can add to a system and take credit for the added capacity or a new system when upgrading. That would be no different. Keep good records, one can always get an audit and if enough abuse occurs where the IRS sees there might be a problem, they will flag claiming solar credits as one of the factors for an audit.

Back in the day of Payment in Kind for farm commodities, the Kansas City office decided to audit any farmer using Payment in Kind when paying a spouse or children. The regional director in Kansas City decided there was abuse and ordered the audits. Quite a few farmers had to cough up taxes, interest and penalties.