Federal Tax Credits for Upgrades

[ELT]

Hi
I am planning to install PV panels, Growatt 6 K inverter, 48 volt 14kWh Rino battery this year and claim the Federal Tax credit for the system this year.
Later (another year due to funds scarcity) I will probably add more PV panels and a second Growatt.
Question: Can I claim a Federal Tax Credit for the upgrade when it is done? Is the Federal Tax Credit a once and done thing?
Accountants say maybe upgrades are creditable.
thanks for any input

 

[timselectric]

Yes, you can claim additions to your system.

 

[Ryushin]

Wanted to bring this thread back up as I don't think you can claim additions to your system, which I was planning on as well. Please correct me if I'm wrong:

Sources:

Solar Tax Credit By State in 2023: The Ultimate Federal Solar Energy Tax Credit Guide

Get expert advice on improvements to your home, including design tips, how much you'd expect to pay for a pro and what to ask when hiring experts.

www.forbes.com

Quote: "It’s essential to note that you can only claim the credit once. If the taxes you owe that year are less than the credit you earned, your credit will roll over to the following year. Also, remember that the credit is a deduction, not a refund."

Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics

This guide provides an overview of the federal investment tax credit for those interested in residential solar photovoltaics, or PV.

www.energy.gov

Quote: "The solar PV system is new or being used for the first time. The credit can only be claimed on the “original installation” of the solar equipment"

Federal Solar Tax Credit Guide for Homeowners (August) (2023)

Check out our updated Federal Solar Tax Credit guide for 2023, including how much the credit is worth, instructions on how to apply and other solar savings.

www.marketwatch.com

Quote: "You can only claim the federal solar tax credit once. If the taxes you owe are less than the value of the credit, the remainder will roll over for a maximum of five years."

I was planning on only buying a half of my batteries this year and the other half next year when I received that tax credit. But based on what I'm reading, I have to do everything this year.

 

[MajicDiver]

"It’s essential to note that you can only claim the credit once. If the taxes you owe that year are less than the credit you earned, your credit will roll over to the following year. Also, remember that the credit is a deduction, not a refund."

Read the actual IRS instructions for the form, not “news” articles about them. You can deduct for equipment you place into service in the tax year. You of course can’t deduct for same equipment 2 different years. The various news articles on the subject are generally written by people who know little about the subject and don’t read the documents.

And the tax preparation industry wants you confused- read the forms, if you can diy a solar system you can certainly understand tax forms.

 

[Solar Guppy]

From the IRS 5695 form instructions:

You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, biomass fuel property, and fuel cell property. Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to interconnect such property to the home. The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property.

There is also this paragraph:

If the total of any nonbusiness energy property credits you have taken in previous years (after 2005) is more than $500, you generally can't take the energy efficient home improvement credit in 2022.

Which supports the one time nature of the qualification.

I was considering adding battery capacity, but its does appear the language would disqualify any additions to an otherwise qualified property.

Big picture is they want new installations, and the updated credit language is written to enforce this.

 

[zanydroid]

I dunno about that. I consider every piece of equipment its own separate solar electric property. As long as it's new equipment (therefore no possibility of double dipping/taking infinite tax credits on the 30% by you and a previous owner on both hardware and install costs) it satisfies the spirit of the law to me.

 

[Gavin Stone]

I take that language to mean you cannot claim an existing system that’s already installed. Not that it excludes additions to a system.

 

[Solar Guppy]

I take that language to mean you cannot claim an existing system that’s already installed. Not that it excludes additions to a system.

I dunno about that. I consider every piece of equipment its own separate solar electric property. As long as it's new equipment (therefore no possibility of double dipping/taking infinite tax credits on the 30% by you and a previous owner on both hardware and install costs) it satisfies the spirit of the law to me.

The language is one install per qualified property

It's not just the equipment but also the physical location that defines qualified solar electric property.

 

[zanydroid]

Where do you get the physical location interpretation out of the text of the document?

Note that I don't read property in these instructions as real property or improvements, rather as a generic "something you own", in this case the panels, racking, inverters

 

[TomC4306]

Well, I took the credit in multiple years.
Originally for the base system.
Following year for additional solar and batteries.
I'll post here if Uncle Sugar comes knocking...

 

[Q-Dog]

I think you are hung up on the labor costs line. You can get the credit for any solar equipment (property) you buy for your own use.

You can also include ANY labor costs associated with the original install, like site prep.

 

[Browse]

I would take the credit for any new purchases and/or additions to a system and if the IRS doesn't like it, they can tell me where I went wrong.

 

[Solar Guppy]

Where do you get the physical location interpretation out of the text of the document?

Note that I don't read property in these instructions as real property or improvements, rather as a generic "something you own"

From the linked IRS document.

You get no credit for just buying a solar system ( or parts for one ).

The credit is for an original installation at a physical residential property you own.

Well, I took the credit in multiple years.
Originally for the base system.
Following year for additional solar and batteries.
I'll post here if Uncle Sugar comes knocking...

Yes, this is very possible, they are so understaffed it seems nothing is getting flagged.

I follow the rules is my choice and always has been for my annual tax returns.

 

[Solar Guppy]

I would take the credit for any new purchases and/or additions to a system and if the IRS doesn't like it, they can tell me where I went wrong.

Usually there are penalties associated with that view ( if flagged ), but it is a valid concept and enforcement doesn't seem to be a priority and I get where you are coming from.

 

[Q-Dog]

When I built my backup battery system a couple of years ago I didn't have solar so I couldn't take the credit. I claimed the solar panels, racks and charge controllers I bought last year but couldn't add the inverter and batteries that I already owned. If I expand the battery and add another inverter I can claim that since storage is now included in the tax credit program.

 

[zanydroid]

The credit is for an original installation at a physical residential property you own.

Yes, it needs to be put in-service but I don't see where you are getting the "one and only install per physical residence"

When I see "original" I think of that as the first time the equipment is put in service

 

[Gavin Stone]

The language is one install per qualified property

It's not just the equipment but also the physical location that defines qualified solar electric property.

Property meaning the objects you’re installing. I am all for following rules. I definitely do myself. But according to the tax people I’ve talked with, this isn’t a one time claim. If you expand your system you can claim on whatever aspects are new. Or “oringal”. Otherwise if someone added an energy efficient water heater that would exclude them claiming anything for a solar system the following year.

 

[Browse]

Yes, it needs to be put in-service but I don't see where you are getting the "one and only install per physical residence"

When I see "original" I think of that as the first time the equipment is put in service

This is the way I see it as well. The intent of the regulation wouldn't make sense otherwise.

 

[Solar Guppy]

When I built my backup battery system a couple of years ago I didn't have solar so I couldn't take the credit. I claimed the solar panels, racks and charge controllers I bought last year but couldn't add the inverter and batteries that I already owned. If I expand the battery and add another inverter I can claim that since storage is now included in the tax credit program.

Unfortunately the wording is original qualified solar electric property ( merriam-webster: As in initial, coming before all others in time or order )

There is no language that supports additions too original. Homeowners get a single shot at this, if any previous credits was taken more than $500 on the physical location since 2005, no further improvement for qualify at that physical address, that is the language as written.

FYI: I total get all the "I see, I believe, I think responses, I will file and hope I don't get caught", I'm just posting exactly what the IRS has published.

 

[Solar Guppy]

This is the way I see it as well. The intent of the regulation wouldn't make sense otherwise.

The intent of the legislation was to encourage new residential locations to install original systems, not build bigger or expanded functionality for something previously installed. ( again the word original AND the real property location is part of the IRS guidance ).

I understand everyone is free to interpret as they wish, that doesn't mean the IRS guidance isn't very specific and limited.

 

[Q-Dog]

I trust my tax accountant more than some person on the internet with strong opinions.

 

[TomC4306]

I follow the rules is my choice and always has been for my annual tax returns

As do I.
I read and tried to absorb the intent of the rule and, not being a CPA, used my good faith interpretation to prepare my taxes.

 

[webbbn]

The $500 limit is for energy efficiency upgrades, not solar improvements, so that is not applicable here. There has also been updates to the rules for 2023: https://www.irs.gov/newsroom/irs-go...-qualify-for-expanded-home-energy-tax-credits.

I think this makes it clear that "property" is referring to the equipment, not the location where the equipment is being installed.

The Residential Clean Energy Credit equals 30% of the costs of new, qualified clean energy property for a home in the United States installed anytime from 2022 through 2033.
Qualified expenses include the costs of new, clean energy equipment including:
...

This also makes it clear that you can take the credit any year you add new equipment.
The credit is available for qualifying expenditures incurred for installing new clean energy property in an existing home or for a newly constructed home. This credit has no annual or lifetime dollar limit except for fuel cell property. Taxpayers can claim this credit each tax year they install eligible property until the credit begins to phase out in 2033.

 

[Solar Guppy]

As do I.
I read and tried to absorb the intent of the rule and, not being a CPA, used my good faith interpretation to prepare my taxes.

I sincerely wish this is a successful outcome for you!

 

[zanydroid]

I was about to also point out the error in using the $500 energy efficient home credit point to a discussion about clean energy credit