A Rooftop Solar System

A Rooftop Solar System

November 30, 2011

A rooftop solar system may qualify only in part for an investment tax credit, the IRS said.

Many rooftop systems require a membrane underneath the solar panels that doubles as a roof. IRS regulations have two conflicting rules when it comes to such membranes. One is that investment tax credits cannot ordinarily be claimed on the cost of “buildings and structural components.” The other is that even though something looks like part of the building, it can be so specially engineered as to be part of the equipment being installed on top of it. The IRS said it is prepared in such cases to allow an investment credit on the membrane only to the extent of the incremental cost above what a membrane that serves solely as a roof would cost.

The IRS position is in Private Letter Ruling 201121005. The agency released the text in June.

It is not clear the conclusion is correct.

Congress said when it first authorized an energy tax credit for solar equipment (on which the current investment credit is patterned) that such equipment qualifies for a tax credit “without regard to whether the equipment [is] a structural component of the building.”

There are two tax credits for rooftop solar systems. A system put to business use qualifies potentially for an investment tax credit for 30% of the “basis” the owner has in the system.

The other tax credit is a solar residential credit — also 30% — for systems owned by homeowners. IRS officials say there is no reduction in the solar residential credit where solar shingles or tiles are installed, even though they also function as a roof.

Meanwhile, the IRS told a homeowner in another private ruling made public in August that a solar residential credit can be claimed on the incremental cost of a condensing unit installed to cool a home using electricity from rooftop solar panels. The IRS let the homeowner claim a tax credit on the cost to modify the condensing unit to run on solar electricity directly without having to run the electricity through an inverter. The homeowner was able to claim a 10% tax credit on the remaining cost of the condensing unit as an energy efficiency improvement to a building. The ruling is Private Letter Ruling 201130003.

The IRS is updating its regulations on when solar equipment put to business use qualifies for investment tax credits. The existing regulations date to 1980. The agency hopes to issue new regulations by June 2012. It is collecting comments in the meantime.

Keith Martin