Do’s and Don’ts of Claiming the Residential ITC on a Solar Upgrade
- Alyssa Hardbower
- September 13, 2022
- 2 Minute Read
Tax Credit Extended!
Good news! The 30% Federal Investment Tax Credit for solar has been extended with the signing of the Inflation Reduction Act! Nonprofits and government organizations are now also eligible for a 30% Direct Pay Reimbursement on solar installations. Don't miss out on savings from this incentive! Let us know when you're ready for a free virtual solar assessment.
We’ve reached out to Randy Lucas, a CPA specializing in energy and tax issues, to clarify common points of confusion around the residential portion of the 30% Federal Investment Tax Credit for solar. He’s provided guidance on What Is and Isn’t Eligible for the Federal Investment Tax Credit (ITC), as well as When’s the Best Time to Go Solar to Take Advantage of the ITC.
He’s back again with a case study example to illustrate what can be claimed on the residential ITC when working with a home solar upgrade while re-roofing.
Case Study Example
Claiming the Federal ITC on a Home Solar Upgrade & Roof Replacement
For homeowners who already own solar systems, there are opportunities to add to the existing system while taking advantage of the residential solar Federal Investment Tax Credit (ITC). Here’s an example of a unique case our firm recently worked on with a family who owned a 10kW system on their primary residence that was originally installed back in 2011 that is fully operational today, however the home now needs a roof replacement which requires uninstalling the system.
The homeowners decided in addition to the roof upgrade and uninstall, to expand the system to 12.5kW and replace the original racking with improved, lighter racking material that was not available in 2011. After the full roof replacement, the expanded 12.5kW system with the new racking was installed with new wiring and connected to the original inverter.
The current tax code allows a taxpayer/homeowner to make additional investments to a renewable energy system from a previous tax year and will allow new investment tax credits to the extent of the new investment, but not routine maintenance of the original system.
What's Eligible for the 30% Solar Tax Credit?
In this case, the following costs incurred by the homeowners were found to be eligible for the residential 30% ITC for 2022 income taxes:
- The cost of the additional solar panels to increase the system capacity from 10kW to 12.5kW
- The cost of the new racking
- The cost of the labor and installation of the re-installation of the 12.5kW system
- The allocated portion of the roof replacement directly related to the supporting the solar
What Isn't Eligible for the 30% Solar Tax Credit?
The following costs incurred by the homeowners were deemed ineligible for the residential ITC for 2022 income taxes:
- The cost of the unmounting of the original system from 2011
- The cost of the non-solar roof replacement
Again, the time is now for residential solar, especially with the recent renewal of the 30% residential ITC. If you feel the need, please consult your tax advisor or contact us for assistance specific to your system.
Randy M. Lucas, CPA
Principal Consultant, Lucas Tax + Energy Consulting
- 704.968.5506
- randy@lucastaxandenergy.com
- @LucasT_and_E
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