A home solar project must be fully operational** by Dec. 31, 2019 to qualify for the 30% Solar Federal Tax Credit.
There is some misinformation regarding “Safe Harbor” that is being communicated to homeowners that are interested in solar. We want to make sure that homeowners wanting to invest in solar have the correct information. Residential home solar energy systems must be fully operational by Dec. 31, 2019 to qualify for the 30% Federal Solar Tax Credit. There are several steps along the way of a solar installation that could make “fully operational” impossible if started too late in the year. Factors include:
- Equipment. Experienced installers have been stocking up on equipment since the end of 2018/beginning of 2019, predicting a shortage towards the end of 2019. Anything from solar panels to racking pieces and parts could be difficult to purchase late in the year.
- Permits/Inspections. AHJ’s (authority having jurisdiction; typically the local building department) work at different paces. Some faster than others. If an AHJ is innundated with projects year-end, they may not get to yours.
- Utility interconnection agreements. Utilities also run on different time schedules, some more responsive than others. Toward the end of the year, this process could run slower.
What is **fully operational? Solar is considered “operational” or placed in service when: 1) Construction is complete 2) utility approved connecting the system to the grid, 3) preoperating tests determined the equipment works, and 4) you gained ownership of the system.
The Investment Tax Credit (ITC) is currently a 30% federal tax credit claimed against the tax liability of residential (under Code Section 25D) and commercial and large-scale utility solar farm (under Code Section 48) investors in solar energy property. In June of 2018, the IRS issued guidance/requirements for establishing the beginning of construction for solar energy projects utilizing the commercial solar Investment Tax Credit (ITC) (under Code section 48) which is similar to the guidance for the previously issued wind production tax credit. The IRS guidance notice provides two methods a taxpayer may use to establish that construction of a qualified commercial solar facility has begun for purposes of claiming the solar investment tax credit (ITC): (1) starting physical work of a significant nature (Physical Work Test), or (2) meeting the so-called Five Percent Safe Harbor test (i.e., paying or incurring five percent or more of the total cost of the facility in the year that construction begins). For further explanation of the
SOLAR ITC, please see this article written by The Solar Energy Industries Association.
The “Safe Harbor” ruling only applies to commercial installations and large scale utility solar farms under code section 48. “Safe Harbor” does not apply to residential home solar installations. The Solar Federal Tax Credit for residential homeowners is 26% Jan. 1, 2020 – Dec. 31, 2020.
