A SOLAR DEVELOPER installing solar panels as part of a new low-income housing project did not have to reduce the 30% solar tax credit, even though the housing project was financed in part with tax-exempt bonds and the owners of the project qualified for a separate tax credit for investing in affordable housing.

The US government offers anyone installing new equipment to generate electricity from sunlight a tax credit for 30% of the cost of the equipment,The credit is claimed in the year the
equipment is placed in service.The 30% credit can be claimed only on commercial projects. A project that is owned by a solar company and used to supply electricity under contract to a homeowner or apartment building is considered commercial. The credit amount drops to 10% for projects placed in service after this year. However, Congress is expected to extend the deadline. The tax credit is reduced to the extent the project is funded in part with tax-exempt bonds or “subsidized energy financing.” An example of subsidized energy financing is a loan under a state or local government program aimed at encouraging energy conservation.

The IRS told a partnership that was set up to develop a low-income housing complex that it can claim the full 30% solar credit.The agency said no reduction is required despite the fact that the project is being financed with tax-exempt bonds. None of the bond proceeds will be used to pay for the solar equipment.The bond documents explicitly prohibit use of any bond proceeds to pay for the solar equipment, and the solar equipment is not included in the collateral for the bonds.

The advice was in a private ruling that the IRS made public in late May. It is Private Letter Ruling 200820011.