Do’s and Don’ts of Claiming the Residential ITC on a Solar Upgrade

Solar installer on a roof with a home solar system

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 Federal Investment Tax Credit for solar (now 26%, soon to be 22% in 2021, and 0% in 2022). 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

In this case, the following costs incurred by the homeowners were found to be eligible for the residential 26% ITC for 2020 income taxes: 

What Isn't Eligible

The following costs incurred by the homeowners were deemed ineligible for the residential ITC for 2020 income taxes:

Again, the time is now for residential solar. If this upgrade were to occur in 2021, the residential ITC would be 22%.  If it were to occur after 2022, when the system is still operational for another 15-20 years, the residential ITC would be 0% under the current tax code.

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

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