The solar tax credit, officially known as the Investment Tax Credit (ITC), is a federal incentive aimed at promoting the adoption of solar energy systems. It allows homeowners and businesses to claim a tax credit based on a percentage of the cost of installing a solar panel system. The solar tax credit has been instrumental in making solar energy more affordable and accessible to a broader range of individuals and organizations.
The solar tax credit works by allowing eligible taxpayers to deduct a percentage of the qualified solar energy system’s cost from their federal income taxes. The solar tax credit is currently set at 30% and will step down to 26% in 2033, and again down to 22% in 2034. The solar tax credit expires in 2035.
To claim the solar tax credit, taxpayers must meet specific criteria. The solar panels must be installed on a taxpayer’s primary residence or a secondary property, such as a vacation home. Additionally, the solar energy system must meet the qualifications set by the IRS, which typically require the panels to be certified and meet certain safety and performance standards.
The credit can be claimed in the tax year when the solar energy system is installed and placed into service. If the credit amount exceeds the taxpayer’s tax liability for that year, the excess can typically be carried over to future tax years until it is fully utilized. However, it’s worth noting that the solar tax credit is non-refundable, meaning it cannot be used to receive a refund beyond the taxpayer’s tax liability.
Overall, the solar tax credit serves as a powerful incentive that saves homeowners and business a lot of money when installing solar panels. By reducing the upfront costs associated with solar installations, the credit plays a significant role in accelerating the transition to clean and sustainable energy sources.
There has been some confusion in the past whether the solar tax credit covers the cost of re-roofing and roof repairs. Unclear legislative wording and lack of guidance have not helped matters. As a result, some roofing and solar companies have claimed roofing costs can be covered if they are necessary for the solar install. Others have claimed roofing costs can qualify if they are rolled into a solar loan. Some have even used this method to try covering roofing costs not associated with solar installations.
Despite all this confusion and gray-area, one thing is clear: The solar tax credit does not cover the costs of a new roof or roof repairs, regardless if they are necessary for the solar installation.
The IRS has issued guidance on what costs are eligible for the solar tax credit. According to the IRS, only the costs directly related to the installation of the solar panels are eligible for the solar tax credit. This includes the cost of the solar panels, inverters, wiring, and mounting hardware. The IRS has explicitly stated that the cost of repairing or replacing the roof is not eligible for the IRS solar tax credit (ITC) unless it is necessary to support the installation of the solar panels.
So while some roofing and solar companies might say the solar tax credit covers re-roofing and roof repair costs, that’s simply not the case. Even if the roof costs are necessary for the solar install, or if the costs are rolled into a solar loan, those costs are not eligible for the solar tax credit.
The IRS website says the following: “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.”
Thus, in very limited circumstances, you might be able to deduct some roofing costs under the Energy Policy Act.
- If your existing roof lacks the structural strength to support the solar panels, you may need to reinforce it with new joists or sheeting. You may be able to deduct the cost of these upgrades.
- Another potential deduction would be specialized shingles designed to improve the efficiency of the solar panels.
Certain roofing materials, such as metal or asphalt shingles that meet Energy Star requirements, may qualify you for a 10 percent federal tax deduction. This deduction does not fall under the solar tax credit, but rather the Non-Business Energy Property Tax Credit. Note that the tax credits mentioned above do not include installation costs.