Tax Credit for solar installed on investment property

[evowner]

I'm wondering if someone has already been through my scenario.

I'm trying to get some guidance on the federal tax credit for solar panels installed on a primarily residential investment property. There is a 30% business ITC which has the following exclusion "Used for lodging or in the furnishing of lodging (see section 50(b)(2) for exceptions). However one of the exceptions is energy property in the list of exclusions.

I'd use net metering to apply the credit to my primary home, so I'd think I should be safe to get the residential 30% credit on my personal income taxes. The IRS states that the panels don't have to be physically on the primary residence.
.02 Solar Electric Property

Q–25: If a taxpayer installs solar electric property other than directly on the taxpayer's home, may the taxpayer claim the § 25D credit?

A–25: Section 25D(d)(2) defines a qualified solar electric property expenditure, in part, as an expenditure for property that uses solar energy to generate electricity for use in a dwelling unit that is used as a residence by the taxpayer. Therefore, if solar panels that are not directly located on the taxpayer's home use solar energy to generate electricity directly for the taxpayer's home the taxpayer may claim the § 25D credit.

[inetdog]

The key point, it seems to me, is that regardless of where the solar equipment is physically located, as long as the GTI output is wired to the service of the owner's residence the credit will apply. Even if the GTI output ends up upstream of the residence service disconnect, as long at it backfeeds the residence meter it should qualify.
Usual Disclaimers: IANATA, YMMV.

[sensij]

The key point, it seems to me, is that regardless of where the solar equipment is physically located, as long as the GTI output is wired to the service of the owner's residence the credit will apply. Even if the GTI output ends up upstream of the residence service disconnect, as long at it backfeeds the residence meter it should qualify.
Usual Disclaimers: IANATA, YMMV.

I would agree with this (with all the usual internet smart guy disclaimers). If it not physically wired, and you are only using the net metering credit through some account management tactics, it doesn't sound OK to me.

[evowner]

I would agree with this (with all the usual internet smart guy disclaimers). If it not physically wired, and you are only using the net metering credit through some account management tactics, it doesn't sound OK to me.

That's exactly how the tax credits for Community Solar works, you get the residential credit even though the solar panels are physically not on your roof but with virtual net metering.

[sensij]

That's exactly how the tax credits for Community Solar works, you get the residential credit even though the solar panels are physically not on your roof but with virtual net metering.

I'm not sure I understand what you mean. According to NREL's guide for community solar:

Investment Tax Credit (ITC):
Section 48 of the Internal Revenue Code defines the federal ITC. The ITC
allows commercial, industrial, and utility owners of photovoltaic (PV) systems to take a one-time tax credit
equivalent to 30% of qualified installed costs. There is also a federal residential renewable energy tax
credit (Internal Revenue Code Section 25D) but the residential tax credit requires that the PV system be
installed on a home the taxpayer owns and uses as a residence, thus it would rarely, if ever, be applicable
to community solar projects.

[evowner]

I'm not sure I understand what you mean. According to NREL's guide for community solar:

Investment Tax Credit (ITC):
Section 48 of the Internal Revenue Code defines the federal ITC. The ITC
allows commercial, industrial, and utility owners of photovoltaic (PV) systems to take a one-time tax credit
equivalent to 30% of qualified installed costs. There is also a federal residential renewable energy tax
credit (Internal Revenue Code Section 25D) but the residential tax credit requires that the PV system be
installed on a home the taxpayer owns and uses as a residence, thus it would rarely, if ever, be applicable
to community solar projects.

The IRS clearly states that the panels do not have to be physically on your property.

http://www.irs.gov/irb/2013-47_IRB/ar09.html#d0e340

[evowner]

The IRS clearly states that the panels do not have to be physically on your property.

http://www.irs.gov/irb/2013-47_IRB/ar09.html#d0e340

.02 Solar Electric Property

Q–25: If a taxpayer installs solar electric property other than directly on the taxpayer's home, may the taxpayer claim the § 25D credit?

A–25: Section 25D(d)(2) defines a qualified solar electric property expenditure, in part, as an expenditure for property that uses solar energy to generate electricity for use in a dwelling unit that is used as a residence by the taxpayer. Therefore, if solar panels that are not directly located on the taxpayer's home use solar energy to generate electricity directly for the taxpayer's home the taxpayer may claim the § 25D credit.

Q–26: A taxpayer purchases solar panels that are placed on an off-site solar array and connected to the local public utility's electrical grid that supplies electricity to the taxpayer's residence. The taxpayer enters into a direct contractual arrangement with the local public utility that supplies electricity to the taxpayer's residence to allow the taxpayer to provide electricity to the grid using a net metering system that measures the amount of electricity produced by the taxpayer's solar panels and transmitted to the grid and the amount of electricity used by the taxpayer's residence and drawn from the grid. The contract states that the taxpayer owns the energy transmitted by the solar panels to the utility grid until drawn from the grid at his residence. Absent unusual circumstances, the panels will not generate electricity for a specified period in excess of the amount expected to be consumed at the taxpayer's residence during that specified period. Can the taxpayer claim the § 25D credit?

A–26: Yes. Section 25D(d)(2) defines a qualified solar electric property expenditure, in part, as an expenditure for property that uses solar energy to generate electricity for use in a dwelling unit used as a residence by the taxpayer. The taxpayer's expenditure for off-site solar panels under this type of contractual arrangement with a local public utility that supplies electricity to the taxpayer's residence meets the definition of qualified solar electric property expenditure.

[inetdog]

The IRS clearly states that the panels do not have to be physically on your property.

http://www.irs.gov/irb/2013-47_IRB/ar09.html#d0e340

But it is not completely clear to me whether the virtual net metering arrangement constitutes offsetting your residential load. Under your argument the panels could even be in another state as long a POCO agreed to the setup.

[evowner]

But it is not completely clear to me whether the virtual net metering arrangement constitutes offsetting your residential load. Under your argument the panels could even be in another state as long a POCO agreed to the setup.

I did read somewhere about a 50 mile distance. In my case it's less than 50 miles and I'll be offsetting my residential usage under the same power utility.

[sensij]

Based on the reference you are quoting, I guess as long as you meet these two conditions you will be ok:

1) The contract states that the taxpayer owns the energy transmitted by the solar panels to the utility grid until drawn from the grid at his residence.

2) Absent unusual circumstances, the panels will not generate electricity for a specified period in excess of the amount expected to be consumed at the taxpayer's residence during that specified period.

What does your net metering contract state?