IRS rule change is a big gift to industrial solar

The IRS has amended their rules for the Investment Tax Credit that is a big windfall for companies that plan to start solar installations by the end of 2019. The change will allow solar projects to begin construction by the end of 2019, and still get the 30 percent tax credit – versus being in service by that date.

For all practical purposes, medium- and large-scale solar power projects that expect to take a year to two (or more) for development and construction just got a two-year extension on the Investment Tax Credit (ITC).

IRS, seeing the popularity of the tax credit as a way to jumpstart a solar revolution, has officially noted that it is “replacing the requirement to place energy property in service by a certain date with a requirement to begin construction by a certain later date.

This means that instead of your solar project having to finish by December 31st, 2019, it must now begin (defined below in two specific ways) on or by that date to qualify for the 30 percent tax write off. This same logic applies to the following two years and their 26 percent and 22 percent tax credits.
 

IRS defines when solar panel construction begins

The IRS notes that there are two methods for establishing the beginning of construction, the Physical Work Test or the Five Percent Safe Harbor.

Onsite physical work can take many forms, however, it does include any of the following preliminary activities.

It allows for planning or designing, securing financing,  exploring, researching, conducting mapping, and modeling to assess a resource, obtaining permits and licenses, conducting geophysical, gravity, magnetic, seismic and resistivity surveys, and conducting environmental and engineering studies.

It is notable that manufacturing of hardware necessary to the project that is done off-site counts toward physical work, including assembly of racks and rails, inverters, and transformers. However, if those components come from inventory or are normally held in inventory, then they aren’t allowed to be considered physical work.

The Five Percent Safe Harbor provision states that construction will be considered as having begun if the taxpayer has paid or incurred – per Treas. Reg. § 1.461-1(a) – 5 percent or more of the total cost of the project. This does not include land costs.
 

IRS did not address residential solar power

Also noted by Martin, is that the IRS guidance is not addressed to the directly owned residential solar power market – as this is the corporate-focused Investment Tax Credit and not the Residential Renewable Energy Tax Credit. However, it does apply to third-party owned residential solar systems that solar companies lease or use to sell electricity to homeowners.

If you want to move into the future and join the solar revolution, or if you want to find out what solar panels are right for you, go to HahaSmart.com and try our price checker tool. You can see how much a system will cost, and how much you can save over the next 20 years.

For more information relating to going solar, don't forget to visit our solar blog section for more handy guides and articles.