Could I claim the 30% federal solar tax credit for portion or all cost related to a re-roof if I get new solar panels?

[Critter]

"No expenditure relating to a solar panel or other property installed as a roof (or portion thereof)"

I think the above phrase is what is hanging you up ... the words say AS A ROOF  and not THE ROOF ... for instance, my bank has installed solar panels over the drive thru lanes in lieu of a traditional roof so just because the solar panels act as a roof does not exclude them for the credit.  Also a client had the panels installed AS AN EXTENSION to his Garage roof which provided a shaded driveway for the cars ... it was not ON the roof it was the roof ... so the installation of the pillars to support the solar panels were part of the solar costs even though they became their own structure.  Another client had the panels mounted on 8 foot poles which made a lovely Gazebo in the backyard ... again it became it's own separate structure.

[BMcCalpin]

I am grateful for a civilized thread with calm, reasoned responses. But as a tax professional, I feel that I have to make one last (everyone hopes 😉 ) attempt to explain why we think the way we do.

It is difficult to understand tax law, indeed, all law seems to relish being inaccessible to the non-legal professional. This is because the law requires for more consistency in words and sentences than ordinary conversation, which is all too often vague, imprecise, and even contradictory. Thus the law may be expressed in contorted sentences which are precise in meaning but difficult to understand for the non-tax and non-legal professional. Should it be this way? I wish not, but it is this way for the same reason that characters in television shows always ask the medical professional to “speak English”. Just like lawyers, doctors have to use terminology and phrasing to make precise communications.  

So how do we parse legal terminology so that the non-tax and non-legal professional can understand it? We can use the same principles that we used in high school algebra: substitution of terms. That is:

If A = 1 and

B = A then

B must be equal to 1.

Let’s apply this method to understand Section 25D of Title 26 of the Internal Revenue Code (https://www.law.cornell.edu/uscode/text/26/25D).

(1) 25D(a)(2) states: “In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of the applicable percentages of…the qualified solar electric property expenditures…"

(2) What are “qualified solar electric property expenditures”?

(3) 25D(d)(2) is in the Definitions section that applies to 25D: “For purposes of this section…(t)he 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.”

(4) So let’s rearrange the previous sentence in paragraph 3 - “qualified solar electric property” means a property which uses solar energy to generate electricity…

(5) Now, let’s look at (e)(2), which is the confusing sentence that started this discussion.

“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.”

(6) We know from paragraph 1 above that the only property that gets the tax credit is “qualified solar electric property”. Therefore, we can substitute the word “property” in paragraph 5 with “qualified solar electric property”. And we know from paragraph 4 that “qualified solar electric property” means a property which uses solar energy to generate electricity.

(7) By substitution, then, we see that (e)(2) should read as “No expenditure relating to a solar panel or other property which uses solar energy to generate electricity 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.”

(8) Now we understand the purpose of (e)(2). As pointed out above by other participants in the thread, solar panels and other electricity-generating properties like solar photovoltaic shingles can be installed as a “roof” for the structure. But because Congress did not want property like solar shingles to be disallowed for the credit solely because they were also “structural components” of the house (as the roof is, per the IRS elsewhere), (e)(2) was written to create a “clarification” (yes, I realize the humor of this statement) for the proper treatment of property that was both part of the solar energy system AND part of the house.

From this, we have to conclude that the law was not intended to apply to ordinary roof components (like shingles) because such items do not satisfy the definition of "qualified solar electric property" as implied in (d)(2). (last sentence edited 7/31/2019 to replace missing text).

[CA Solar Expert]

EXACTLY. Thank you.

[roofian]

you seem like you know your stuff.

what about a re-roof when you are removing solar panels to install a new roof and then reinstalling them after the new roof is complete?

Can the cost for removal and reinstallation qualify for the tax credit?  If so, what specific language in the code refers to this?

Please email me direct at [email address removed] (if you have time).  

Thanks for your help!

[BMcCalpin]

As noted elsewhere, it would be a good idea to create a new post when you have a new question, even if the question is related to the one at hand. This enables more people to see the question and improves the chances of getting a good response.

Also note that this is a public forum and that the moderators will remove (as they should) any personally identifiable information such as your full name, telephone number, Social Security number, email address, and so on.

As for your question, I see two reasons why the cost of removal and re-installation of the solar panels would not qualify for a tax credit.

"Original"

The US Tax Code at https://www.law.cornell.edu/uscode/text/26/25D states that the credit is taken in the year that the original installation takes place. The year when the installation takes place is determined by:

Except as provided in subparagraph (B), an expenditure with respect to an item shall be treated as made when the original[emphasis mine] installation of the item is completed.

(25D (e)(8)(1)).

Paragraph B which follows does not apply because it is referring to solar property that is an integral part of the structure, which solar panels are not.

"No Double-dipping"

If you allowed a tax credit on the original solar panel installation, it would not make sense allow tax credit a second time on the same panels. Otherwise, taxpayers would remove the panels every year and reinstall them, and claim the credit every year.

And, of course, there is no credit for the roof shingles in any case, for the reasons described earlier on this page.

[philday]

according to sunpro.com and buildpro.com, they claim that the federal tax credit does apply to replacing the roof in conjunction with solar panel installation.  Other solar installers are telling me the same thing.  According to the instructions for the form, it does look like it does apply for the credit.

[philday]

So all the arguments made are very good and well thought out, but there is one thing missing specifically in the analysis.  A new roof that supports solar panels requires a more detailed installation process than an ordinary roof installation.  I'm not an expert by any means, but if solar panels are installed on an existing roof, specifically asphault shingles, the mounting brackets are nailed/attached thru the shingle creating multiple leak points penetrations.  Understand that a typical asphault shingle has a one inch space to nail and the roof is likely to fail over time with the attachment of the solar panels.  Ideally, a solar panel installation will occur in conjunction with a new roof installation so that the proper underlayments are put in and the structural mounting brackets can be placed under the shingle.  All of this is time-consuming and expensive and a new shingle is required.  The new underlayments allow for penetrations that are self-sealing.  Why this wouldn't be considered for the tax credit doesn't make sense.  Under many of the arguments against taking the tax credit suggest that if the item does not produce solar energy then it fails.  Does that mean the mounting brackets are disqualified?  The glass over the panel disqualified?  What about the any of the other items that don't directly produce energy?  I realize i'm splitting hairs, but it seems congress wanted to encourage solar adoption and it is expensive.  Reroofing to support panels does make sense so that we don't have roofs falling down and leaking like sieves.  

[Critter]

At the IRS seminar that I attended the IRS agent mentioned this specific topic ... you CANNOT claim the cost of the roof or re-roofing as a solar credit ... the only thing allowed would be the required fixing of the roof to handle the installation of the solar panels which means extra supports or connections needed to secure the panels to the home.  

[BMcCalpin]

@phildaythe original question was "Can I reroof the house at the same time as I install the panels and add the cost of the reroofing to the tax credit calculation?" Clearly, for the reasons stated above, the answer is No.

Just above, Critter points out an exception, which is if some modifications need to be made to the roof to make it able to carry the solar panels, then that can be considered part of the solar project, but NOT reroofing the entire roof.

So to address your question, you can add to the tax credit calculation roofing costs that are directly related to the success of the solar panel installation, but not incidental costs, such as reroofing other parts of the roof that are not part of the solar installation.  

As for solar installers that say otherwise, first, we here at the Community don't know what they are actually and specifically saying (are they perhaps saying the same thing that we are, that some roofing modifications are part of the tax credit or are they saying that you can roll an entire new roof into it?). Second, will they add a clause to your project contract promising to pay the penalties and interest assessed on you by the IRS when you are audited and the non-pertinent part of the roofing expenses are disallowed for the credit? I doubt it. They are roofing professionals, not tax professionals.

[rfdeanto]

I am purchasing a new house that won't be complete until May.  However I signed the contract in November 2019.  Can I claim the cost in 2019?  

[rfdeanto]

WHEN can I claim the credit? 2019 or 2020

[rfdeanto]

For New Construction, not replacement.  When can I claim the credit for added solar panels?

[BillM223]

You can take the credit in the year 2020.

The IRS says, 

"For purposes of both credits, costs are treated as being paid when the original installation of the item is completed, or, in the case of costs connected with the reconstruction of your home, when your original use of the reconstructed home begins. For purposes of the residential energy efficient property credit only, costs connected with the construction of a home are treated as being paid when your original use of the constructed home begins." See Instructions for form 5695.

Since the "Qualified solar electric property costs" are considered to be part of the Residential Energy Efficient Property Credit (see pages 1 and 2), then the phrase "costs connected with the construction of a home are treated as being paid when your original use of the constructed home begins" applies.

Since I imagine that the original "use" of your new home will not begin until 2020 (when the home is finished enough to move in), your credit can be taken in 2020, not 2019.

[CPAMike]

@CA Solar Expert and @BMcCalpin Thank you for your logical and well-reasoned answers. They are very comprehensive and well thought out. I personally agree and have saved myself some research time and effort. It is incredibly helpful to know that the verbiage in question from the 5695 instructions that is being used by many to justify a roof as eligible credit costs comes directly from the code under the section "Solar Panels." Re-reading the code and the instructions after making that connection of context, I am 100% on board with your conclusions and would have drawn them myself. So thanks again.

[mwmcgehee767200]

First, let me say that when I began this project I inquired with a CPA and he said I could include the roof as part of the Solar deduction since it was structurally required to bear the weight of the solar panels.  The project was started in 2019 and qualifies for the 30% credit.

Now, reading through this thread I have a couple of questions but first some background:

When I looked at getting solar panels, the company was unsure of the load characteristics of the existing roof.  Therefore, I had the company do an engineering analysis.  That report stated that I needed to reinforce the existing roof (Homasote with a built-up tar covering, supported by 4x6 beams on 32" centers, common here in South Florida in houses built in the '50's) to carry the weight of the solar panels.  The restructure of the entire roof was done to the engineering specifications and a Metal standing seam roof (with insulation) was installed.  The structural analysis was reviewed and approved by the local government as was the installation (4 separate inspections).

So, now the solar panels are installed.  They cover about 66% of the restructured roof.

My questions are:

1)  Since the restructure of the entire roof was required, can I add the cost to the solar credit?

2)  If so, can I use the entire amount?  Of course, I could not have rebuilt only 66% of the roof since the entire roof bears the weight.

Thank you.