New Solar Roof owners - how much can we write off in taxes?

[jboy210]

Hi,

As we approach the end of the year it is time to think about tax planning for the SolarRoof we installed in 2020. In the initial documents, we received an estimate from Tesla based on the portion that is active tiles. However, I am seeing neighbors with non-Tesla systems writing off 26% of their entire conventional roofs because they were told needed a new roof before the solar installer would put on panels.

Thoughts?

 

[trautmane2]

Not what we'd like to hear, but I think it is pretty clear that only the PV portion of the roof is eligible for the credit.

From https://www.irs.gov/pub/irs-pdf/i5695.pdf

Qualified solar electric property costs. Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home located in the United States. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. Some solar roofing tiles and solar roofing shingles serve the function of both traditional roofing and solar electric collectors, and thus serve functions of both solar electric generation and structural support. These solar roofing tiles and solar roofing shingles can qualify for the credit. This is in contrast to structural components such as a roof's decking or rafters that serve only a roofing or structural function and thus do not qualify for the credit. The home doesn't have to be your main home.

 

[wjgjr]

I'll offer two citations addressing why your neighbors are probably not allowed to claim those. First, from a Tax attorney: The solar energy credit: Where to draw the line?

The real question lies with treatment under Sec. 25D for residential property. Some commentators have argued that the language "installed as a roof" contained in Sec. 25D(e)(2) allows for different treatment than Sec. 48 and would permit the cost of a new roof to be included when calculating the residential energy credit. In the author's opinion, that appears to be a very aggressive position, which the author would not be comfortable advising a client to take.

And, from a seemingly-reputable solar installer, which really gets to the heart of the issue I think your post is touching on: Re-Roofing & The Solar Tax Credit - Third Sun Solar

Problem 2: Just because someone successfully claimed the tax credit for a wrong amount and didn’t get audited, doesn’t mean they were correct in doing so.

The IRS form requires no proof of purchase, receipts, contracts or invoices to prove how much you spent or what expenses were for. The form itself makes it easy to get away with anything. So, many people do. We don’t advise doing this!

So, to answer your questions, I think it is pretty clear that, other than some very specific exceptions (like reinforcing an existing roof,) general roofing costs cannot be claimed on the ITC when adding panels. And, similarly, for a solar roof, the entire roof cannot be claimed (imaging re-roofing and adding in one shingle, just to get the credit.)

So, what I expect to claim is:

1. The portion of the roof Tesla identified as potentially eligible for the credit.
2. The full cost of the PWs, which is eligible for the credit.
3. A reduction in the claim of the prorated amount of the bundle discount that Tesla provided for solar+PW. (in other words, if 60% of our contract is covered by the ITC and 40% isn't, then I would reduce our ITC claim by 60% of the Tesla discount.)

 

[jboy210]

Thanks for the feedback.

How does this work for people that needed to remove skip sheeting (6" of board, 6" of gap, 6" of board, ...) used under wood shingles to which solar cannot be mounted? They then need to cover the entire roof above the rafters with OSB/strand board, and then put on asphalt or tiles on which solar can be installed. Do they pro-rate the eligible costs to only the portion of the roof on to which the solar panels/solar tiles are installed? I think this is the case my neighbors are in.

 

[wjgjr]

Thanks for the feedback.

How does this work for people that needed to remove skip sheeting used under wood shingles to which solar cannot be mounted? They then need to cover the entire roof above the rafters with OSB/strand board, and then put on asphalt or tiles on which solar can be installed. Do they pro-rate the eligible costs to only the portion of the roof on to which the solar panels/solar tiles are installed? I think this is the case my neighbors are in.

I think this is where a tax expert comes in - I'm not 100% clear that even purely necessary structural changes (like adding bracing) is necessarily covered, and I don't know if this is. But I would guess if it is, then pro-rating it is probably the best you could claim - again, to avoid the case where somebody could put up one panel but claim the ITC for the entire roof because the old roof was in some way deficient for solar. (And, I also assume the IRS does not care about aesthetics, unlike most homeowners who wouldn't want to only replace a part of the roof with a compatible material but leave the rest.)

 

[vickh]

I'll offer two citations addressing why your neighbors are probably not allowed to claim those. First, from a Tax attorney: The solar energy credit: Where to draw the line?



And, from a seemingly-reputable solar installer, which really gets to the heart of the issue I think your post is touching on: Re-Roofing & The Solar Tax Credit - Third Sun Solar



So, to answer your questions, I think it is pretty clear that, other than some very specific exceptions (like reinforcing an existing roof,) general roofing costs cannot be claimed on the ITC when adding panels. And, similarly, for a solar roof, the entire roof cannot be claimed (imaging re-roofing and adding in one shingle, just to get the credit.)

So, what I expect to claim is:

1. The portion of the roof Tesla identified as potentially eligible for the credit.
2. The full cost of the PWs, which is eligible for the credit.
3. A reduction in the claim of the prorated amount of the bundle discount that Tesla provided for solar+PW. (in other words, if 60% of our contract is covered by the ITC and 40% isn't, then I would reduce our ITC claim by 60% of the Tesla discount.)

good points. I remember in my MBA program one prof. said for some people their tax return is their first offer

 

[charlesj]

..., other than some very specific exceptions (like reinforcing an existing roof,) ...

When I went through the design and plan check for my system in 2012, the city wanted an engineer's stamp that my 2x4 trusses, designed by an structural engineer was sufficiently strong to support the panels.
The engineer almost fell of his chair. He wrote a letter explaining that roofs are designed to support 10 lbs/sqft working loads on top of roofing material, materials, etc. Solar removes that area to place such loads and panels and all hardware is about 4 lbs/sqft.
Such simple, self evident issues and it becomes time wasters.

 

[patrick40363]

Hi,

As we approach the end of the year it is time to think about tax planning for the SolarRoof we installed in 2020. In the initial documents, we received an estimate from Tesla based on the portion that is active tiles. However, I am seeing neighbors with non-Tesla systems writing off 26% of their entire conventional roofs because they were told needed a new roof before the solar installer would put on panels.

Thoughts?

I would write off the entire amount. That is what I plan on doing when my solar roof is installed. Read the IRS language.

 

[dhquigley]

I plan on going with the amount TESLA calculated in putting together my price quote, and I shared that with my tax guy. I think they based it on producing tiles versus non-producing tiles, and allotted overhead on that basis. Given that this number is easy to find and reproduce, I am reluctant to go with a different number absent a crystal clear directive in the code to the contrary.

 

[CrazyRabbit]

you can't right off the cost of non active panel or a new roof prior to installing traditional solar panels. tesla did the breakdown because that is the law..

solar installers say that you need a new roof is that the installer has to crawl all over your roof and will damage it and then you will be screaming at the installer...

 

[wjgjr]

I would write off the entire amount. That is what I plan on doing when my solar roof is installed. Read the IRS language.

I would be interested to know what language it is you think justifies this. My guess is it is the text "No expenditure relating to a solar panel or other property installed as a roof (or portion thereof) shall fail to be treated as property described in paragraph (1) or (2) of subsection (d) solely because it constitutes a structural component of the structure on which it is installed."

However, this double-negative "No expenditure ... shall fail...." does not indicate that anything serving as a roof does qualify, only that the fact that it also serves as a roof does not disqualify. The cites within the quote make it clear that to qualify, the item still needs to be be part of the solar generation system, and I do not see how the non-producing shingles qualify, as such an interpretation would imply that an entire roof with a single producing shingle would qualify the entire roof, which is clearly not the intent of the program.

The IRS Q&A (which does not constitute an official determination, but certainly indicates the IRS stance) also has this to say (Energy Incentives for Individuals: Residential Property Updated Questions and Answers | Internal Revenue Service):

Q. Is a roof eligible for the residential energy efficient property tax credit?
A. In general, traditional roofing materials and structural components do not qualify for the credit. However, some solar roofing tiles and solar roofing shingles serve as solar electric collectors while also performing the function of traditional roofing, serving both the functions of solar electric generation and structural support and such items may qualify for the credit. Components such as a roof's decking or rafters that serve only a roofing or structural function do not qualify for the credit.

This indicates that the tiles/shingles that generate power and structural support may qualify. However, blank tiles, which serve only the function of traditional roofing, do not qualify.

There is a reason Tesla has provided the advice they do, and it seems consistent with what most other, reputable sources state. Of course, as noted in some of the items I quote above, you could take the "very aggressive position" of claiming it all, and you might not have an issue because certainly not everybody gets audited, but that does not make it consistent with the regulations.

 

[patrick40363]

I would be interested to know what language it is you think justifies this. My guess is it is the text "No expenditure relating to a solar panel or other property installed as a roof (or portion thereof) shall fail to be treated as property described in paragraph (1) or (2) of subsection (d) solely because it constitutes a structural component of the structure on which it is installed."

However, this double-negative "No expenditure ... shall fail...." does not indicate that anything serving as a roof does qualify, only that the fact that it also serves as a roof does not disqualify. The cites within the quote make it clear that to qualify, the item still needs to be be part of the solar generation system, and I do not see how the non-producing shingles qualify, as such an interpretation would imply that an entire roof with a single producing shingle would qualify the entire roof, which is clearly not the intent of the program.

The IRS Q&A (which does not constitute an official determination, but certainly indicates the IRS stance) also has this to say (Energy Incentives for Individuals: Residential Property Updated Questions and Answers | Internal Revenue Service):



This indicates that the tiles/shingles that generate power and structural support may qualify. However, blank tiles, which serve only the function of traditional roofing, do not qualify.

There is a reason Tesla has provided the advice they do, and it seems consistent with what most other, reputable sources state. Of course, as noted in some of the items I quote above, you could take the "very aggressive position" of claiming it all, and you might not have an issue because certainly not everybody gets audited, but that does not make it consistent with the regulations.

That is the IRS language.

 

[wjgjr]

That is the IRS language.

Which does not support the position of claiming the entirety of the solar roof. I wish it did, since the additional amount would be equivalent to about 3-4 years of generation (depending on exactly how much I want to claim - were the gutters that I did have to replace because they would not work with my roof also creditable?) But, despite my desire to have the language mean what I want, it seems clear it means what it actually says when read in context (and which tax professionals, who are much more qualified to read and interpret IRS regulations, seem to agree it says.)

I also go back to the point that Tesla and its lawyers/accountants clearly agree as well, as I know they would love to advertise a bottom-line number some 10% lower - it could easily be the tipping point for a lot of customers on the fence between solar panels and solar roof.

 

[ucmndd]

you can't right off the cost of non active panel or a new roof prior to installing traditional solar panels.

Of course you can. All the form asks for is a number.

You might even get away with it, depending on whether or not your return gets flagged for audit. Of course, if it does, writing off the entire roof is obviously against both the spirit/intent and letter of the law, and you'll owe the difference back with interest and penalties.

I'm thinking the odds of audit rise dramatically when fraudulently attempting to claim the credit on an entire $50-100k solar roof vs sneaking in some new comp shingles, but some people will surely roll the dice.

 

[wjgjr]

Of course you can. All the form asks for is a number.

You might even get away with it, depending on whether or not your return gets flagged for audit. Of course, if it does, writing off the entire roof is obviously against both the spirit/intent and letter of the law, and you'll owe the difference back with interest and penalties.

I'm thinking the odds of audit rise dramatically when fraudulently attempting to claim the credit on an entire $50-100k solar roof vs sneaking in some new comp shingles, but some people will surely roll the dice.

I think we are splitting hairs between "can" as in legal (which is what he clearly meant) vs. "can" as in the form will accept the data and be submitted to the IRS. Indeed, you can claim the ITC for the install of panels/roof that was never actually done, as you probably can for a lot of other credits/deductions, and just hope the IRS never audits you. Certainly in those cases, penalties and potentially criminal sanctions would be a risk. With the discussion of the solar roof in particular, it seems the best case would be to hope the IRS would just levy interest and not go for penalties.

I agree that in the end the audit is the control on this behavior, and I would also assume that any ITC claim, and particularly a larger one, would increase your chances of an audit. I know the IRS has algorithms to help score returns and identify audit targets, and I would think the ITC would be part of it.

 

[Sake7]

The quote I got for a solar roof is pretty shady in that it calculates the potential tax credit as applied to the entire system price.

125,200 * .26 = 32552.

They even rounded up by the next 100 dollars to make it look more enticing.

 

[slcasner]

For my solar roof project (8.77kW + 2 Powerwalls) the estimated credit for the first price sheet corresponded to the cost of the solar roof material + labor plus batteries plus about 65% of the cost of the non-solar roof material + labor. I tried to find out how that was calculated, but couldn't get an answer. For the second and third price sheets the estimated tax credit was similar but about 62% instead of 65%.

But then it appears that Tesla has changed its policy regarding what portion of the project is elibible for the tax credit, for reasons that were not explained. For the fourth price sheet the items previously identified as "Roof Material" and "Roof Labor" became "Solar Roof Tiles Material" and labor, while the items previously identified as "Solar Roof Material" and labor became "Solar Roof System Material" and labor, perhaps to reflect an opinion that all of the roof material and labor was eligible for the tax credit. The estimated tax credit shown corresponded to all of the solar roof plus all of the batteries plus about half of the roof deck replacement. The fifth price sheet, which was the price reduction discussed elsewhere, did not list the roof material and labor separately, and it reverted to just "Roof" and "Solar Roof" for the inactive and active portions. Again the estimated tax credit shown corresponded to all of the solar roof plus all of the batteries plus a portion of the roof deck replacement.

 

[CrazyRabbit]

as stated that was a estimate. don't worry that will be fixed when the quote is finalized.

 

[Sake7]

Telsa is now telling me that since sola roof is an integrated system you can take the tax credit on the entire system. So if you did have 1 active solar tile you could get away with it, but I don't think tesla would ever approve of that design.... a stretch but may work for IRS? my contract docs states everything solar...

Solar Roof Tiles Materials
Solar Roof Tiles Labor
Solar Roof System Material (25.025 kW)
Solar Roof System Labor (25.025 kW)

 

[wjgjr]

Telsa is now telling me that since sola roof is an integrated system you can take the tax credit on the entire system. So if you did have 1 active solar tile you could get away with it, but I don't think tesla would ever approve of that design.... a stretch but may work for IRS? my contract docs states everything solar...

Solar Roof Tiles Materials
Solar Roof Tiles Labor
Solar Roof System Material (25.025 kW)
Solar Roof System Labor (25.025 kW)

That is certainly a different position than they used to take. I would feel like it is a bit of a stretch for exactly that 1-tile extreme example (and I did not claim my entire roof, based in part on what Tesla was advising at the time) but I would certainly be more comfortable if Tesla and a tax professional directly responsible to me signed off on it. At the least, in the event of an audit, you would be able to argue that your position was taken in good faith.

I do wish Congress would clarify some of this - in the case of solar shingles, something along the lines of stating it is entirely creditable if at least 50% of the surface area is PV, or something similar, might cover it.