Potential Tax Credit for Solar Energy Storage Retrofit

Good news for homeowners who are considering adding a battery storage system to their existing solar energy systems in the future. Not only will they be able to guard against power outages by utilizing their stored energy from their rooftop solar, but their retrofit may even be eligible for a tax credit.

 In a recent private letter ruling, the IRS ruled in favor of the taxpayer, allowing the 30 percent tax credit for qualified solar property expenditure.

 The taxpayer sought the tax credit for an energy storage product that would be added to an existing solar energy system (rooftop PV). This additional solar energy system component consisted of an AC battery, an inverter, wiring to interconnect the storage product to the existing solar system and home, and a software management tool for the battery.

 Essentially, it came down to two key issues. Would the battery, installed as a component part of the system and using ONLY solar energy be “qualified solar electric property expenditure”? The second issue pertained to when it was installed. If the battery was installed in a tax year AFTER the solar energy system installation tax year, would it be considered “qualified solar electric property expenditure”?

The IRS ruled that under Code Sec 25D(d)(2), the battery was a “qualified solar electric property expenditure” along with labor costs for site preparation, installation and interconnecting per Code Sec 25D(e)(1) and eligible for the tax credit. It was also determined that the taxpayer was eligible for this tax credit as the battery was qualifying property (based on the grounds that it stores 100 percent solar-generated energy). Just as the rooftop PV system installed in an earlier year was qualifying property.

In order to be considered a qualified solar property expenditure, the battery storage system must use only solar energy to generate electricity.                                                                                                                  

Although the IRS’ private letter ruling only applies to the requesting taxpayer and stated it does not set a precedent, there exists the potential for taxpayers with residential solar systems already installed to claim the federal Investment Tax Credit (ITC) for solar battery system retrofits. This also provides guidance, albeit not authoritative, to nonresidential battery storage projects. But, time is of the essence.

The ITC remains at 30 percent for begun residential construction through 2019, but in 2020 reduces to 26 percent, and in 2021 to 22 percent, which still helps to somewhat offset the homeowner’s expense of the qualifying property.

According to Greentech Media, “Adding batteries to residential solar systems remains an expensive proposition, the price drops of lithium-ion batteries has helped. Median system prices stood at $2,900 per kilowatt-hour in the first quarter of 2018…”

 Note that after 2023, the ITC for residential drops to zero. For an overview of ITC and solar industry quick facts and data, visit Solar Energy Industries Association (SEIA).

 We hope you enjoy this issue. As always, we welcome your comments. Email info@rodmancpa.com with your feedback.