Read the question carefully. What answer makes sense to you? Usually, the most obvious answer is correct. And that’s the case here.
There are many solar contractors and sales outfits out there that are claiming that you can bundle a new roof with solar panels and take the tax credit on the whole thing. It sounds too good to be true right? That’s because it is.
Some hedge their bets and say that you can only take the credit on the portion of the roof where solar panels will be installed. Others claim that you can say the new roof is a reflector that directs sunlight to the back of a bifacial solar panel.
What Is The Actual Law For The Solar Tax Credit
Does any of this make sense? Do you really think Congress intended for the solar tax credit to work like this. Here is what qualifies:
I.R.C. § 25D(d)(2) Qualified Solar Electric Property Expenditure — The term “qualified solar electric property expenditure” means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer.
What the tax credit clearly does allow are things like solar shingles or solar tiles. This is where the roof membrane itself is made of solar panels. But even so, that would only apply to the portion of the roof that is made up of the energy-producing shingles or tiles.
A mistake that the tax code writers made was to include the word “roof” in the tax law in a confusing way. There is a provision that says that you can claim the credit, more accurately that the credit can’t be denied, if the solar panel itself makes up the roof surface or structural component. The intent of this language is for things like solar pergolas, skylights, shingles, tile, or other technologies where the solar panel itself ***IS*** the roof surface or structure. Some shady contractors have twisted these words to mean that part of the roof itself can be claimed as “qualified solar electric property.”
I.R.C. § 25D(e)(2) Solar Panels — 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.
While this section is confusing, a careful analysis indicates the true intent.
IRS Guidance For The Solar Tax Credit
The IRS guidance is clear on the matter. For example, on the IRS.gov website’s Q&A page, one of the questions and answers says (emphasis added):
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.
Some contractors try to make the argument that the roof is required to support the solar panels, so it is part of the system. By that logic, the walls and foundation should also qualify. Why not build a whole house, put up one solar panel, and just take the solar tax on the whole home! The IRS has made it clear in their Q&A guidance.
Another common argument is that “reflective roofs” are required for reflecting solar light to bifacial panels. It may help increase energy production, but the IRS made a letter ruling on this subject that says you can only claim the incremental (extra) cost of the reflective nature of the roof over the cost of a normal non-reflective roof in the calculation. So if you spend $50,000 replacing your roof with a reflective roof, but a normal roof would cost $45,000, you can only claim $5,000 in the basis for your tax credit. Source: The Tax Advisor and Norton Rose Fulbright.
According to Berry Dunn, “the IRS has consistently held that only the ‘incremental cost’ of the roof installation may qualify as solar energy property if it is integrated with the machinery and equipment. ”
For a ground-mounted solar array, clearly the mounting structure qualifies since it serves no other purpose other than supporting the panels. That’s logical. It’s common sense. There are plenty of other parts of the system that qualify, like the wiring specifically attributable to the solar energy conveyance to the home.
How Do They Get Away With These Lies?
First, it is you, the taxpayer, attesting to what is “qualified solar electric property.” There is no provision in the law that says you can rely on the guidance or attestation of a solar contractor when calculating what credit is due to you. You are on the hook if you are audited and found to have filed a fraudulent claim. The contractor is in no way required to break down costs in their contract that are and are not eligible for tax credits. It’s up to you to decide and file accordingly.
In fact, no documentation is required when filing your claim for a solar tax credit. You simply put a single number on a form, attesting to that figure as the eligible amount.
Most solar contractors are smart enough to not put these ridiculous roofing tax credit claims in writing (although some have). It’s usually a salesperson that you are dealing with, not the company owner, so they have little to lose. Some people will say just about anything to make a sale and get their big fat commission check.
You need a trusted solar contractor that will tell you the truth. Look for one with a good reputation (ratings) and try to deal directly with the owner, not an independent sales rep. And we recommend never buying from a solar sales organization that will subcontract the actual work. Dealing directly gives you a straight line to the people who make decisions and take responsibility for their actions.
What If I Want To Buy My Solar Panels From My Roofer?
That’s no problem. The same applies if you want to buy a new roof from your solar contractor (as long as they are licensed to do so or can legally subcontract that work). There are two ways to calculate what is eligible for the tax credit:
- Have your contractor provide line item costs for the solar panels and the roof separately. This is probably the safest route, as long as the contractor reasonably attributes costs to each. Present the documents to your tax professional so they can determine if the evidence is sufficient to support an audit should it come.
- If your contractor only provides you with a lump sum contract and invoice, obtain estimates for each part of the work separately or otherwise determine a reasonable split with the advice of your tax professional.
In both cases, you are attesting to what costs qualify for the tax credit. The solar contractor is most likely off the hook (as long as they are not complicit in fraudulent activity).
Hire A Tax Professional
We are not tax consultants. While there may be large solar contractors with lawyers and accountants on staff, most solar contractors cannot answer your most important tax questions competently, and don’t have your best interests at heart.
One expert source, the Bradford Tax Institute, states unequivocally that, “The new roof keeps the water, wind, and sun out, but it does not qualify for the tax credit if it does not generate or contribute to the generation of electricity.”
You should always seek the advice of a trusted tax lawyer or accountant if you have questions about what your eligibility is for solar tax credits. Claiming a tax credit for something to which you are not entitiled could cause you serious problems. Your recourse with a solar contractor would likely be fruitless. There is no substitute for personalized, competent advice from someone other than a solar contractor, us included.
And don’t believe everything you read on the Internet!
Heck, I would take this entire article with a grain of salt, but we are quite certain that a new roof / re-roof does NOT qualify for a solar tax credit. It’s the logical and sensible conclusion.
We required a new roof as the old roof could not support the solar panels system , was not in code and had no plywood. So it was our understanding that only a portion could be deductible ?
Eddie, that sounds like an illegitimate tax credit claim. You need a roof anyway. It forms part of the building envelope. That’s not eligible for a tax credit in any proportion just because you put solar panels on it. Be wary of contractors that claim they can “get” you a tax credit. Ultimately, YOU claim a tax credit and YOU are on the hook if it’s deemed illegitimate. It’s this kind of shenanigans that makes some taxpayers really despise solar tax credits.