BulldogTom Posted January 21, 2023 Report Share Posted January 21, 2023 Taxpayer has solar installed on her home. The company who sold and installed the panels completed the work, and the work was paid for, before 12/31/2022. However, the permits have not been finalized. Per The Tax Book, the credit can only be taken "when the original installation of the item is completed". If they are not permitted yet, is the installation completed? In other words, what is the tax definition of completed. Thanks in advance. Tom Longview, TX Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted January 21, 2023 Report Share Posted January 21, 2023 If permits not final means it may not be connected at all, aloft true, not completed to me. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 21, 2023 Author Report Share Posted January 21, 2023 That is how I read it too, but I am just hoping someone else can point me to something that would bring this credit into 2022. Tax laws can and do create definitions that are not at all common sense. I am hoping this might be one of those times for the benefit of my client. Tom Longview, TX Quote Link to comment Share on other sites More sharing options...
Sara EA Posted January 21, 2023 Report Share Posted January 21, 2023 From IRS FAQ" "The credit applies for property placed in service after December 31, 2021." (emphasis added) Since their solar was not in service in 2022, but was paid for in 2022, looks like no credit at all. The client should go after the installer for a price break, if that who was responsible for the permitting. Quote Link to comment Share on other sites More sharing options...
Lee B Posted January 21, 2023 Report Share Posted January 21, 2023 I have had several clients in recent years spend money on projects because the salesperson promised them they would get a large energy tax credit. Of course when they gave me their annual tax documents they didn't have the required paperwork. When i had my clients call the company that did the work, the salesperson no longer worked there and the company didn't know what my clients were talking about. Quote Link to comment Share on other sites More sharing options...
Lee B Posted January 21, 2023 Report Share Posted January 21, 2023 Whether you decide it's a 2022 credit or a 2023 credit it's 30% for either year. The words when the original installation is complete makes me choose 2022, subject to the documentation received from the installer. Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted January 21, 2023 Report Share Posted January 21, 2023 A daily question for me, constructive receipt in payroll. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted January 21, 2023 Report Share Posted January 21, 2023 I have a client who installed his own and wanted to deduct cost of installation. I haven't seen the paperwork yet, but apparently he works for the company. Oh well, it never hurts to ask I guess. Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted January 21, 2023 Report Share Posted January 21, 2023 16 hours ago, BulldogTom said: The company who sold and installed the panels completed the work, and the work was paid for, before 12/31/2022. The tax code does not define the term “installation”. In fact, the credit is specifically allowed by the code for “expenditures” made during the tax year. Section 25D(e)(8) states that an expenditure is made when the “installation” of an item is completed. It does not state that the asset must be place in service, (as is the case for depreciation), only installed. However, in the case of the “business energy credit” under section 48, the credit is specifically allowed as a percentage of the basis of “property place in service” during the year. So in the case of your client I do not see and issue in taking the credit. 2 Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted January 21, 2023 Report Share Posted January 21, 2023 15 hours ago, cbslee said: I have had several clients in recent years spend money on projects because the salesperson promised them they would get a large energy tax credit. I have a retired couple that had one installed with the promise of tax credits, but will never receive the benefit because of their low amount of taxable income. 1 Quote Link to comment Share on other sites More sharing options...
Sara EA Posted January 22, 2023 Report Share Posted January 22, 2023 In addition to the Code, the instructions for Form 5695 do say when installation is complete. Don't know why FAQ say differently. 1 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 22, 2023 Author Report Share Posted January 22, 2023 I have been looking for guidance because I remember a couple years ago that some of the rules changed just before the percentage dropped. If I remember correctly, the IRS was letting people who started installs to get the 30% even if it wasn't installed all the way because of Covid. That may have expired, but I am not finding what I was looking for. Anyone else remember those rules and if they are still in force? Tom Longview, TX Quote Link to comment Share on other sites More sharing options...
Slippery Pencil Posted January 23, 2023 Report Share Posted January 23, 2023 Is it connected to a battery backup and functional or will it only be functional after the electric company hooks it up to the grid after the permit is issued? Quote Link to comment Share on other sites More sharing options...
joanmcq Posted January 31, 2023 Report Share Posted January 31, 2023 I took the credit in the year installed even though the electric company didn't hook it up until January. 3 Quote Link to comment Share on other sites More sharing options...
Slippery Pencil Posted February 1, 2023 Report Share Posted February 1, 2023 On 1/30/2023 at 8:50 PM, joanmcq said: I took the credit in the year installed even though the electric company didn't hook it up until January. This was discussed on the TaxTalk io group a couple years ago. Pretty much everyone agreed the credit was taken after the system was hooked up and functional. 2 Quote Link to comment Share on other sites More sharing options...
mcbreck Posted February 1, 2023 Report Share Posted February 1, 2023 4 hours ago, Slippery Pencil said: This was discussed on the TaxTalk io group a couple years ago. Pretty much everyone agreed the credit was taken after the system was hooked up and functional. I have a relative who took the credit when it was installed. Just needed an electrician to hook it up to the grid. That last step took 18 months because of installation problems the electrician found. As was said previously about others, the guy who sold it moved onto another company and the company they bought from sold to another so nobody thought they were responsible. When the second company wanted to sell to a third, it was put on hold when they figured out this relative wasn't making payments (and nobody was sending them to collections) and demanded to know why. Poof - they got it fixed. 1 Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted February 1, 2023 Report Share Posted February 1, 2023 9 hours ago, Slippery Pencil said: This was discussed on the TaxTalk io group a couple years ago. Pretty much everyone agreed the credit was taken after the system was hooked up and functional. But that does not tell us anything. What authoritative cites did they refer to? Section 25D(e)(8) (A) states : In general Except as provided in subparagraph (B), an expenditure with respect to an item shall be treated as made when the original installation of the item is completed.” That is in contrast to section 48 for a commercial energy credit which specifically states the property must be placed in service. While there might be some uncertainty as to the definition of “installation”, obviously there is a lower standard for claiming a residential credit vs a commercial credit where the term “placed in service” is used. Without researching the legislative history, it appears congress intended to give individuals a greater incentive to go solar by setting a lower standard. In fact, section 25D drops the bar a notch further for the residential credit in stating an “expenditure” is made when installation is completed; meaning the credit is allowed if the installation is completed in year one while payment is made in year two. In regards to the term “installation”, let’s say you put a new engine in a semi-truck and the work was completed by December 31,2022. However, the truck was not licensed and permitted until January of the next year. Depreciation on the engine cannot begin until placed in service in 2023. Now what if tax code said depreciation could begin when “installation is completed”, would you tell client no depreciation until ready and available for service? Or would you start depreciation in year engine was physically installed instead of waiting until the next year when permits were obtained? Getting back to OP, I would have this discussion (and document it) with client and let them decide if they met the definition of “installation”. 1 Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted February 1, 2023 Report Share Posted February 1, 2023 9 minutes ago, DANRVAN said: Getting back to OP, I would have this discussion (and document it) with client and let them decide if they met the definition of “installation”. And I would add to that "absent any case law". Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 1, 2023 Report Share Posted February 1, 2023 1 hour ago, DANRVAN said: Getting back to OP, I would have this discussion (and document it) with client and let them decide if they met the definition of “installation”. How many clients will consider the definition of "installed" and actually apply it to their situation? Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted February 1, 2023 Report Share Posted February 1, 2023 25 minutes ago, cbslee said: How many clients will consider the definition of "installed" and actually apply it to their situation? I think key here is to point out to them the difference in terminology between section 48 and 25D; placed in service vs installation completed. I would also point out that neither the IRS or case law has defined the term "installation" beyond common definition in this instance. In other words, I am comfortable with it if they are; and a reasonable position has been taken. Therefore I will not deny them the credit. Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted February 2, 2023 Report Share Posted February 2, 2023 18 hours ago, Slippery Pencil said: This was discussed on the TaxTalk io group a couple years ago. Out of curiosity, I did a search on that site and found thread titled "2020 SOLAR CREDIT" In post #7 reference was made to Section 25D(e)(8) with opinion that credit was allowed when hook up in following year. In post #8, #7 was question, but changed his mind and agreed in post #10. In post #12 reference was given to PLR 201809003 in support of disallowing the credit in 1st year. In post #13 it was pointed out that fact pattern and issue addressed in PLR 201809003 was not same as OP in the thread. In post #14 a reference was made from "Office of ENERGY EFFICIENCY & RENEWABLE ENERGY" website Q and A in support of disallowing the credit until hooked up. So my question is, what authority does the Office of Energy Efficiency have when it comes to interpreting the tax code? Quote Link to comment Share on other sites More sharing options...
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