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sjsuss
Returning Member

Federal Solar Hot Water Heater Tax Credit (2021)

If I replace only my solar water heater (and pump and controller) but retain my existing roof solar panel, do I still qualify for the federal solar water heater tax credit (26%)?
Also, how do I obtain the solar verification for my property?
Thanks.

4 Replies
Mike9241
Level 15

Federal Solar Hot Water Heater Tax Credit (2021)

Qualified solar water heating property costs.

 

Qualified solar water heating property costs are costs for property to heat water for use in your home located in the United States if at least half of the energy used by the solar water heating property for such purpose is derived from the sun. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. Some solar roofing tiles and solar roofing shingles serve the function of both traditional roofing and solar electric collectors, and thus serve functions of both solar electric generation and structural support. These solar roofing tiles and solar roofing shingles can qualify for the credit. This is in contrast to structural components such as a roof's decking or rafters that serve only a roofing or structural function and thus do not qualify for the credit. To qualify for the credit, the property must be certified for performance by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the state in which the property is installed. The home doesn't have to be your main home.

sjsuss
Returning Member

Federal Solar Hot Water Heater Tax Credit (2021)

Thank you Mike. I had read that in the regs as well.  But it mentions costs "to heat water" which to me seems to relate to the panels, whereas the tank is the collector (but still essential to the overall system).  Hence I am still uncertain if the tank only replacement would qualify for the credit.

Opus 17
Level 15

Federal Solar Hot Water Heater Tax Credit (2021)

The actual tax code in question (26 USC §25(D) has this definition:

 

1)Qualified solar water heating property expenditure

The term “qualified solar water heating property expenditure” means an expenditure for property to heat water for use in a dwelling unit located in the United States and used as a residence by the taxpayer if at least half of the energy used by such property for such purpose is derived from the sun.

 

I don't know if, when Congress wrote the law, or the Treasury Department wrote the regulations, they were thinking about having to replace the tank before the solar panels, even though this is an expected occurrence (solar panel life of 15-20 years and tank life of 6-12 years depending on water quality).

 

Just on the basis of "property used to heat water" it would seem to include replacing the tank without replacing the solar panels.

 

I don't know what you mean by "verification."  You don't send proof when you file your return, you just claim the credit.  If audited, you must prove you had a qualifying expense, so save your documents (contracts, pictures, etc) for at least 6 years.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
sjsuss
Returning Member

Federal Solar Hot Water Heater Tax Credit (2021)

Thank you for your reply 🙂

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