What is the triggering even that makes the a solar install eligible for the rebate? I assume it's when it's actually paid for. Tesla says you don't pay until the system is turned on and operating. If my system is installed in time but the inspection and permission to operate doesn't come until after Dec 31st, do I have any options? What if I pay for the system before the end of the year even though the utilities haven't yet granted permission to operate?
Will I lose the full 26% if permission to operate comes after 12/31?
- Thread starter sorka
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SoCal Dave
Member
Your bill with Tesla is actually due within 5 days of final inspection. This is before PTO which is required to turn on your system. Tesla will not send the request to the utility until you pay what is owed.
The FAQ by the IRS linked below says the system must be in-service. I take PTO as when the system would be in-service.
Energy Incentives for Individuals: Residential Property Updated Questions and Answers | Internal Revenue Service
Hm, I thought it was when construction started on the project, so long as the project was placed into service prior to 1/1/24, according to https://www.irs.gov/pub/irs-drop/n-18-59.pdf. Although is this some difference between a "residential energy property credit" and an "investment tax credit"?
I don't think it was mentioned, but the 26% credit goes down to 22% in 2021, and then 0% in 2022. That's to cover the first part of the question you had "Will I lose the full 26%".
Mentioned this in another thread - the instructions for IRS Form 5695 (https://www.irs.gov/pub/irs-pdf/i5695.pdf) say:
The link you quoted talks about section 48 - the commercial credit - not section 25. SoCal Dave's link actually addresses this:
The link you quoted talks about section 48 - the commercial credit - not section 25. SoCal Dave's link actually addresses this:
But many others take the same "placed into service" to mean "fully installed and able to be operated on your property". IRS doesnt say anything about "PTO" of course, they just say placed into service. The system is fully operational after install date, so it would be fairly easy to argue that is "placed into service", because it requires no more construction to operate.
One could also easily argue that once the local "fit for use" inspection is passed, the system is "placed into service" because everything after that point is basically "paperwork".
It would be pretty easy to argue that the system was fully operational on install date, and permit approved on inspection date, so the system is "placed into service", at least it seems to me.
The most conservative way to interpret "placed into service" would be PTO from the utility, but I dont think its cut and dried on that.
I agree with the "fit for use" argument, and would even take that to mean when the system is commissioned by your installer at the end of install. At that point, the installer is done with the install. All the pieces are there and operating as designed. If one wanted to be sure they could wait until the final inspection was passed.
But, I am just a guy on the internet. So go with what you feel comfortable defending.
That is the way I read it, and it seems to match the instructions - which even suggest the costs are treated as being paid at this point.
But in the end, if there is any question, that is what tax advisors are for, and that is really the only way to be confident you have a defensible position.
SoCal Dave
Member
I agree it isn't cut and dry. Fortunately, the IRS doesn't require any documentation when you file. If audited one provided the signed off inspection card and proof of the final payment, I'd imagine an IRS auditor would be happy with that. I doubt they would say, "and where is the PTO from the utility?"
I am also not a lawyer nor CPA / tax attorney, so just like @jboy210 said, I am just "a guy on the internets" but what I found agrees with the other posters on this thread. Saying that, I think the one thing I thing we all agree on is that its not "when construction starts" because that is under the commercial part of the instructions. Nor can you pay for parts early to qualify.
Lets use an example. I have "A friend" (yeah thats it.. a friend.. not me at all...) who had an install date originally of december 18th or 19th of 2019, something like that. This friend of mine did a bunch of looking into this to see would he be able to take the credit in 2019 or would he have to wait until 2020.. since PTO definitely would not come until 2020.
Tesla informed m.....err him (
) that the install date was going to be moved to January 6th 2020. He dug just a little deeper to see if he could pay tesla in full for the system in 2019 so that he could claim it on 2019s taxes because thats when he wanted to take the credit. Unfortunately, he found out that, although there are stipulations for payments to count toward system installation, they did not apply to residential installs.
So, he was unable to pay early (it wouldnt have mattered anyway) and so unable to take the credit in 2019, and will have to do it in 2020. He also missed the 30% credit and will get 26% but got tesla to refund him the difference because the issue with the install date being missed was a tesla mistake.
Lets use an example. I have "A friend" (yeah thats it.. a friend.. not me at all...) who had an install date originally of december 18th or 19th of 2019, something like that. This friend of mine did a bunch of looking into this to see would he be able to take the credit in 2019 or would he have to wait until 2020.. since PTO definitely would not come until 2020.
Tesla informed m.....err him (
) that the install date was going to be moved to January 6th 2020. He dug just a little deeper to see if he could pay tesla in full for the system in 2019 so that he could claim it on 2019s taxes because thats when he wanted to take the credit. Unfortunately, he found out that, although there are stipulations for payments to count toward system installation, they did not apply to residential installs.So, he was unable to pay early (it wouldnt have mattered anyway) and so unable to take the credit in 2019, and will have to do it in 2020. He also missed the 30% credit and will get 26% but got tesla to refund him the difference because the issue with the install date being missed was a tesla mistake.
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Agreed. But as someone who has been audit several times, I will say most IRS people are pretty reasonable when you sit down and explain (through your accountants) why things were done.
holeydonut
Supporting Member
I think the Investment Tax Credit drops to 10% starting 2022... but yeah anyone on the fence about PV or Battery should be looking to invest in 2020 or 2021. This is especially true for anyone in California since they'll soon implement their net energy metering (NEM) 3.0 rules which further harms new clean energy customers.
One thing though... I haven't read the full details of Biden's renewal energy proposal. Maybe he'll push congress to extend the higher ITC timeframe.
The Solar Tax Credit Explained | EnergySage
Edit, whoops the commercial incentive drops to 10%; the residential rate is 0% in 2022.
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holeydonut
Supporting Member
Yeah, the commercial ITC cares about when the project started. And, because there are actually lawyers and lobbies supporting those commercial interests, they've extended the ITC rules where the investment has more time to come online and still get the full ITC.
ITC safe harbor extension provides some COVID relief for solar developers | Solar Builder
Agreed - and it does bring up an important point to make sure to save all of the documentation related to the purchase, especially for a solar roof or other install where not everything might be allowable for the ITC. I expect most of us would do it anyway, but in case of an audit, it saves a lot of headaches to have your rationale for what you claimed and the associated documents handy.
Only for commercial installations, not residential. There won't be any ITC for residential installations starting 2022. Why the Solar Tax Credit Extension is a Big Deal in 2020 | EnergySage
It also kind of makes more sense for the commercial projects since the expectation is they will be larger in scale and take much longer to plan and install, and it is consistent with a lot of the way commercial tax rules related to physical assets work. Of course, there are certainly those who have found what could be seen as loopholes to draw out the credit.
For residential, if you assume the project is complete for ITC purposes when the install is done, most solar panel installs are measured in hours, and maybe days (with solar roof being a couple weeks.) So the only issue becomes the lag between purchase and scheduling. It does suck to be on the wrong side of 12/31-1/1, though. At least the drop so far has not been huge, and Tesla has even been good about reducing pricing and/or refunding customers the difference. But it will be a big issue at the end of 2021 as things currently stand with the residential ITC.
Do you have a link which states when NEM 3.0 is going to take effect in CA? I can't seem to find anything. Read through a bunch of CPUC stuff as well (fun times). One solar installer I was talking to mentioned it would be taking affect on Jan 2021, but I can't find any collaborating info on that.
Uncle Paul
Well-Known Member
If you use the comparable Federal Tax Credit as applied to purchasing a Tesla Vehicle, the Placed into Service means when you have the car and begin using it.
It does not mean when construction is started on your car, when you ordered, when you paid for it etc.
Most likely the Placed Into Service would be when your system is fully installed and generating electricity. The agreement with your utility is not the trigger, but when the system begins producing. Even if the juice was pumped into the ground, used in your home, or charging up batteries, it would still be Placed into Service.
It does not mean when construction is started on your car, when you ordered, when you paid for it etc.
Most likely the Placed Into Service would be when your system is fully installed and generating electricity. The agreement with your utility is not the trigger, but when the system begins producing. Even if the juice was pumped into the ground, used in your home, or charging up batteries, it would still be Placed into Service.
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