Last Week, in a Private Letter Ruling, the IRS ruled that community-solar projects can take advantage of the Investment Tax Credit (ITC). The ITC allows solar owners to receive a 30 percent tax credit for the solar panels and related equipment that they’ve purchased. It’s one of the biggest incentives that’s helped solar power grow in the U.S.
“Since its creation in 2006, the ITC has generated more than 150,000 jobs and spurred 20 gigawatts (GW) in solar development. Ensuring that the credit is available to even more Americans is an exciting step forward in the history of our industry,” said Solar energy Industries Association (SEIA) President Rhone Resch.The new ruling offers clarity for community solar garden customers and builders. The residential ITC is used for homes with solar power installed onsite. The ITC also is available to commercial and utility-scale solar projects, but the way community solar projects are designed, people purchase their share of the garden either in a power-purchase agreement or in an outright purchase of panels in the array.
“This new Private Letter Ruling represents the first instance in which the IRS has publicly weighed in on the applicability of the residential ITC to an owner of solar panels in a shared, offsite array,” said Warren Leon, the Executive Director of Clean Energy States Alliance (CESA). CESA worked with stakeholders in Massachusetts and Vermont, and with attorneys in the Boston office of law firm Foley Hoag, LLP to support the issue. “The ruling suggests that the IRS may be receptive to claims for the residential ITC when a project mirrors the structure used in this case.”
“Community solar is one of the fastest-growing segments of the solar industry, and the IRS' ruling provides much-needed clarity,” Resch said. “By explaining that individuals are eligible for the 25D credit under certain community solar projects, the IRS has signaled that many Americans who cannot put solar on their own roofs can still take advantage of the industry's most effective public policy.” He added that the ruling will help fuel more growth in the solar industry.
The letter ruling only applies to the person who requested the ruling from the IRS, according to Foley Hoag attorney Nicola Lemay. “Under the specific facts presented in this private letter ruling, the IRS has agreed with the individual taxpayer that his or her purchase of solar electric property that is part of a net-metered offsite solar installation with panels owned by multiple individuals qualifies for the section 25D tax credit,” Lemay said, adding that it can’t be used as precedent, but can be used as “‘persuasive authority’ or an ‘instructive tool.’”
“Pairing the 25D credit with the lower installed cost and economies of scale of mid-scale and larger-scale distributed solar holds tremendous potential in enabling direct ownership of community-shared systems by groups of individuals in utility territories with supportive net metering and bill-crediting programs,” added Foley Hoag Attorney Adam Wade who also worked to secure the ruling.Tweet