While the 30% solar tax credit can save homeowners and businesses TONS of money on their solar install, a common misconception can costs them thousands of dollars AND potentially put them in hot water with the IRS. The misconception we’re talking about is roof replacement and roof repair costs, and how those costs relate to the solar tax credit. Many people choose to repair or install a new roof alongside their solar project (like this family in Salem), but the way incentives should be applied is anything but clear.
The solar tax credit law has been misinterpreted and gray areas exploited by solar companies, roofing companies, and misunderstood by solar homeowners in the past. And it has cost some lots of money.
That’s why we are clearing up if the solar tax credit covers a new roof and roof repair costs, and how to avoid making a mistake that could result in an IRS audit.
In This Article:
- What Is The Solar Tax Credit?
- Are Roof Replacement & Roof Repairs Covered by Solar Tax Credit?
- What Does IRS Say About Roof Costs & Solar Tax Credit?
- What Should You Do If Solar Company Says Solar Tax Credit Covers Reroofing & Roof Repairs?
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WHAT IS THE SOLAR TAX CREDIT?
The solar tax credit, officially known as the Investment Tax Credit (ITC), is a federal incentive aimed at promoting the adoption of solar energy systems. It allows homeowners and businesses to claim a tax credit based on a percentage of the cost of installing a solar panel system. The solar tax credit has been instrumental in making solar energy more affordable and accessible to a broader range of individuals and organizations.
The solar tax credit works by allowing eligible taxpayers to deduct a percentage of the qualified solar energy system’s cost from their federal income taxes. The solar tax credit is currently set at 30% and will step down to 26% in 2033, and again down to 22% in 2034. The solar tax credit expires in 2035.
To claim the solar tax credit, taxpayers must meet specific criteria. The solar panels must be installed on a taxpayer’s primary residence or a secondary property, such as a vacation home. Additionally, the solar energy system must meet the qualifications set by the IRS, which typically require the panels to be certified and meet certain safety and performance standards.
The credit can be claimed in the tax year when the solar energy system is installed and placed into service. If the credit amount exceeds the taxpayer’s tax liability for that year, the excess can typically be carried over to future tax years until it is fully utilized. However, it’s worth noting that the solar tax credit is non-refundable, meaning it cannot be used to receive a refund beyond the taxpayer’s tax liability.
Overall, the solar tax credit serves as a powerful incentive that saves homeowners and business a lot of money when installing solar panels. By reducing the upfront costs associated with solar installations, the credit plays a significant role in accelerating the transition to clean and sustainable energy sources.
See our Solar Tax Credit Guide for more details about the 30% solar tax credit.
ARE ROOF REPAIRS & NEW ROOF INSTALLATION COVERED BY THE FEDERAL SOLAR TAX CREDIT (ITC)?
There has been some confusion in the past whether the solar tax credit covers the cost of reroofing and roof repairs. Unclear legislative wording and lack of guidance have not helped matters. As a result, some roofing and solar companies have claimed roofing costs can be covered if they are necessary for the solar install. Others have claimed roofing costs can qualify if they are rolled into a solar loan. Some have even used this method to try covering roofing costs not associated with solar installations.
Despite all this confusion and gray-area, one thing is clear: The solar tax credit does not cover the costs of a new roof or roof repairs, regardless if they are necessary for the solar installation.
The IRS has issued guidance on what costs are eligible for the solar tax credit. According to the IRS, only the costs directly related to the installation of the solar panels are eligible for the solar tax credit. This includes the cost of the solar panels, inverters, wiring, and mounting hardware. The IRS has explicitly stated that the cost of repairing or replacing the roof is not eligible for the IRS solar tax credit (ITC) unless it is necessary to support the installation of the solar panels.
So while some roofing and solar companies might say the solar tax credit covers reroofing and roof repair costs, that’s simply not the case. Even if the roof costs are necessary for the solar install, or if the costs are rolled into a solar loan, those costs are not eligible for the solar tax credit.
And what happens if you do try to include these costs in the solar tax credit? The likely outcome is an IRS audit, paying back any fraudulent tax credit, plus fines and fees and interest. So, moral of the story is don’t try to sneak roof replacement or roof repair costs with your solar panels into your solar tax credit.
WHAT DOES IRS SAY ABOUT ROOF COSTS & SOLAR TAX CREDIT?
As stated above, the IRS does not allow reroofing or roof repair costs to be covered by the solar tax credit. These costs are separate and are not eligible for the 30% solar tax credit. This was clarified by the IRS with the following statement on their website:
“In general, traditional roofing materials and structural components do not qualify for the credit. However, some solar roofing tiles and solar roofing shingles serve as solar electric collectors while also performing the function of traditional roofing, serving both the functions of solar electric generation and structural support and such items may qualify for the credit. Components such as a roof’s decking or rafters that serve only a roofing or structural function do not qualify for the credit.”
WHAT SHOULD YOU DO IF SOLAR COMPANY SAYS SOLAR TAX CREDIT COVERS REROOFING OR ROOF REPAIRS?
If your solar company tells you that you can use the solar tax credit for roof work, be very cautious. As outlined above, the solar tax credit does not cover reroofing or roof repairs. If you or the solar company tries to include these costs when applying for the solar tax credit, it could lead to an IRS audit. Along with that audit you could be requires to pay back tax credits related to roofing costs, as well as interest, fines, and fees.
So while it might sound tempting and the solar company might be convincing, be sure to understand what is actually covered by the solar tax credit. And if the solar company is unwilling to recognize this fact, you should probably seek the second opinion and solar analysis of another solar company.
And for all your questions about the full suite of credits, rebates, grants, and incentives your solar project can qualify for, visit our Oregon Solar Incentives page, and connect with a Solar Advisor for a comprehensive solar proposal.
Estimate your total savings, payments, and total energy usage with our FREE solar calculator.