Residential Solar Tax Credit - Commence Construction

[pm-zz]

Taxpayer has paid all the cost of Solar Panel Installation on Main residence - construction has started however may not be finalized by December 31st.  

Does the individual homeowner qualify for the credit under the "Commence Construction" under the 5% safe harbor given that major project cost were incurred and paid in 2020 -

Or since it's for a residential project, in order to qualify for the ITC during a specific tax year the project must be “placed in service” by December 31 of that year and the equipment is considered “placed in service” once it has been fully installed and is capable of being used by the owner for its “specifically assigned function.”  

[Terry53029 · Accepted solution]

I believe placed in service. From IRS:

 the residential energy efficient property credit allows for a credit equal to the applicable percent of the cost of qualified property. Qualifying properties are solar electric property, solar water heaters, geothermal heat pumps, small wind turbines and fuel cell property. Only fuel cell property is subject to a limitation, which is $500 with respect to each half kilowatt of capacity of the qualified fuel cell property. Generally, this credit for alternative energy equipment terminates for property placed in service after December 31, 2021. The applicable percentages are:

1. In the case of property placed in service after December 31, 2016, and before January 1, 2020, 30 percent.
2. In the case of property placed in service after December 31, 2019, and before January 1, 2021, 26 percent.
3. In the case of property placed in service after December 31, 2020, and before January 1, 2022, 22 percent.

[TaxGuyBill]

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@pm-zz wrote:

on Main residence -  

Does the individual homeowner qualify for the credit under the "Commence Construction" under the 5% safe harbor given that major project cost were incurred and paid in 2020 -

Or since it's for a residential project, in order to qualify for the ITC 

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The solar credit for a main residence (§25D) is not the ITC (§48 and §38) which is for businesses (and rentals).  So Notice 2020-41 about the "Commence Construction" does not seem to apply.

I agree, the residential credit (§25D) is based on the "placed in service" date, meaning it is ready and available to be making power for the household.

[pm-zz]

Thanks,  that was my thought as well - my client's Solar Company provided the "Commence Construction" as applicable. 

[sjrcpa]

The solar companies often provide incorrect info. They are in the business of selling products. One should not take tax advice from them.