Residential Solar Tax Credit for Community Solar

Joanna Schroeder

Community-shared solar had a win last week when the IRS ruled that an owner of offsite PV panels is eligible to take advantage of one of the primary incentives offered to homeowners – the 30 percent federal residential income tax credit, or the residential ITC. Community-shared solar allows electric customers to buy an interest in an offsite solar array and to receive credit on their electricity bills for their ownership interest. While the Internal Revenue Service (IRS) recent Private Letter Ruling is only legally applicable to the individual taxpayer in question—a solar panel owner in Boardman Hill Solar Farm, a Screen Shot 2015-09-07 at 10.27.18 AMmember-managed 150-kW off-site solar array in Vermont—the ruling will be taken as a positive development by community-shared solar participants and project developers.

The solar industry has been working through the issues of whether a residential owner purchasing power for a solar community project can qualify for tax incentives. Working with stakeholders in Massachusetts and Vermont, and with attorneys in the Boston office of law firm Foley Hoag, LLP, and the Clean Energy States Alliance (CESA), arranged for the submission of a Private Letter Ruling request to the IRS to help clarify this issue.

“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 CESA. “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.”

Screen Shot 2015-09-07 at 10.27.23 AMFoley Hoag attorneys Nicola Lemay and Adam Wade provided the legal work leading to the issuance of the private letter ruling request and facilitated discussions with the IRS.

“This letter ruling fills an important gap. It adds a previously unavailable written resource to the growing body of authority which can be used by courts, IRS personnel, and practitioners in structuring community shared solar projects,” added Adam Wade. “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.”

Clean Energy, Electricity, Solar