Federal tax credit for system upgrades?

jdobush

I'm questioning the wording of the current Residential energy tax credit rules. I've always thought they left it pretty vague, but I could take it a number of ways.

This is the text I find at the energy.gov website:

• The solar PV system is new or being used for the first time. The credit can only be claimed on the “original installation” of the solar equipment.

I previously claimed a credit on the initial installation of a Solar installation - panels, controllers, inverters, batteries, wiring, etc. 
A couple years later, now I've installed a new and improved battery bank, reconfigured a number of things, improved charge controller, battery monitor.

I'm 50/50 on if this is really allowed to claim a credit for. It is new money, not double dipping anything, but I'm technically still using the same system. But I am upgrading the efficiency of the overall system and capacity of the battery bank. Technically it was involved with some required maintenance as well. So regarding the newly installed components: it is the "original installation" of that solar equipment. ???

Any opinions welcome, I know i'm not asking for "legal" advice or anything.

BB.

Not legal advice... More of how I understood the requirements' intent...

The kickbacks are there to encourage "more solar power" production (in my earlier days, as I understood the rebates only could be used for Grid Tied (utility powered) systems. They could not be used for Off Grid Systems).

The rebates could not be used to repair or maintain  a system (replacements for failed panels, controllers, etc.).

So, if you, for example, added more solar panels to increase power production--Those new components would have rebates available.

If you added 6 panels to a 12 panel system, and a new charge controller to manage the larger array, then I would guess the 6 panels and 1/3rd of the new charge controller would be eligitiable (and if you added new/larger battery bank--Again, the increase in new bank capacity would be eligible).

Anything that "added new hardware" to increase the capacity of the system to generate power is deductible.

In the real world... I have never heard of anybody being audited by the IRS for solar--At least not here on the forum (I am not a solar or tax professional).

It would seem that two rebate on the same property (x years apart) might be examined.

Reported in the news:

https://www.cbsnews.com/news/irs-audit-eitc-five-times-as-likely-to-get-audited/

IRS audits the poor at 5 times the rate of everyone else, analysis finds

BY AIMEE PICCHI

MARCH 9, 2022 / 11:08 AM / MONEYWATCH

This group is five times as likely to be audited by the IRS as everyone else, according to a new analysis of IRS data by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University. About 13 tax returns out of 1,000 filed by those earning less than $25,000 were audited in the fiscal year ended September 30, compared with a rate of 2.6 for every 1,000 returns for people with incomes above $25,000, TRAC found. 

The reason is a rise in what are known as "correspondence audits," a review of a tax return that's typically handled by the IRS via letters and phone calls, as opposed to the typically more complex face-to-face audits. More than half of the correspondence audits initiated by the IRS last year involved low-income people who claimed the Earned Income Tax Credit (EITC), TRAC found.

....

The upshot: Whatever your income level, the odds of getting audited has declined. The audit rate slipped to 0.2% in 2020 due to the pandemic, according to Jackson Hewitt. That compares with an audit rate of about 0.9% in 2009.

Still, the focus on auditing low-wage workers raises the question of efficiency as well as fairness, Long said. After all, wealthier taxpayers could prove more lucrative to the IRS in terms of collecting unpaid taxes. That idea was at the center of the Biden administration's Build Back Better plan, which would have been funded partially by bolstering tax enforcement at the IRS. 

I guess the "answer" is don't make other "simple errors" (claim too much Earned Income Tax Credit, math errors, etc.) and don't "raise flags" by doing something "different" (i.e., 100,000 Watt system on a single family home)...

-Bill

Photowhit

I looked into off grid and there was nothing stating that off grid was excluded. There was language that the system needed to be installed to code. The rest I understand much as Bill has stated. I do think there was something to the effect of new equipment, so people couldn't double dip, buy a system, clam credit, sell system to brother, he claims tax credit,... 

I don't think I've read the IRS info in 14 years... Doubt the Federal gov would exclude most of Alaska/places without grid...

jdobush

Thanks for the replies - I guess I'm really looking to understand the "spirit" of the tax credit. And I can understand better if it is in fact to promote more overall solar power generation. 

I'll still ponder on this more, it just drives me nuts they don't have more clear rules. Everyone says "ask your tax professional", when they will read the same poorly written instructions that I did. In other words, those who wrote the credit rules don't understand how it works either.

BB.

I remembered that the "must be utility tied" for Tax Credit--That applied specifically to California's solar program. Installation must be approved by the local utility and signed up for net metering (I think)...

https://www.energysage.com/local-data/solar-rebates-incentives/ca/ (updated for 2022)

And this makes sense, because the California rebates are paid for by utilities and utility customers... Off grid systems do not have a "rebate funding source".

-Bill