Every year, about this time of year, we get a lot of questions from our customers about the Tax Code as it pertains to renewable energy credits. We also become aware in the course of dealing with those questions that there are many other installers in this market who make representations about the Tax Code that are simply incorrect and which could, if followed, expose New Mexicans to audits and unfavorable treatment by the tax authorities at a later point in time. The reason for the myths is probably because there are many installers who would rather tell people what they want to hear in order to close a deal than they would simply tell the truth or research the truth so that they can be giving customers and potential customers better advice.
The best advice, of course, is for you to talk to an accountant or certified tax professional. Getting tax advice from a solar installer is sort of like taking medical advice from a lawyer. That’s something you might not want to do if you have a serious heart condition or are facing any serious medical situation. By the same token, it’s probably a bad idea to get legal advice from your IT guy. Granted, there is some overlap because of the importance to the solar industry of the interpretation of the Tax Code.
What follows is a basic rundown of the most common representations that are out there, as well as our interpretation of the Code as it pertains to those representations. But at the end of the day, it is imperative that you obtain sound tax advice from an accountant. There are several excellent accountants who are very familiar with the Tax Code as it pertains to solar projects, and we are always happy to make such a referral. An excellent resource for interpretation of the Tax Code is the DSIRE website (or visit the DSIRE website section with New Mexico-specific renewable energy tax information).
- I can include the cost of a roof replacement with my solar. This is a favorite representation by many solar installers, and it seems to enjoy some unsupported play on the internet as well. I have found several blogs that make the summary assertion that this can be done, but they never seem to cite to their source for that interpretation. The only source we have ever been able to find is an IRS opinion that seems to come to the opposite conclusion. That opinion is available at the bottom of this blog post, so feel free to review it yourself. In it, the IRS does allow the cost of a roof to be included, but that was only because the roof itself increased the energy production of the solar system. That would not be true with a solar panel installation. But again, the best person to ask would, of course, be a tax professional. Show them this opinion and see what they think. We are certainly rooting for the interpretation that would allow the roof to be included, but we just have never found any support for it. And believe me, the IRS won’t care who your solar installer was. That won’t be what helps them make the decision. The interpretation will be what the interpretation is, regardless of who installed it. See previous caution about taking tax advice from solar guys.
- In order to qualify for a tax credit on my 2013 taxes, I just need to sign the contract by December 31, 2013. This is a representation that is actively promoted by unscrupulous solar installers. It simply isn’t true. The language in the tax statutes is very clear that the system must be “placed into service” during the tax year. It must be completed by December 31, 2013. This wouldn’t necessarily include final inspections and utility commissioning, but the system should at least be substantially complete. The “sign a contract by New Year’s Eve” representation is patently false, and you should have serious questions about any installer who would give you this line with a straight face. They are either intentionally misleading you, or they simply don’t know what they are talking about. I’m not sure which is worse.
- In order to receive accelerated depreciation on a commercial system, you only need to sign a contract by December 31, 2013. The same rationale applies here, and the same language is used throughout the statutes. DSIRE does an excellent job of laying this out, and again, they include all the statutory references. Here’s a link to its article on that subject, which in turn has links to all the statutory backup.
At the end of the day, when it comes to interpreting the Tax Code that would apply to the installation of your solar array, this is not like a high school debate competition. The prize doesn’t go to the solar installer who can keep the straightest face when giving you completely erroneous Tax Code interpretations. The prize should go to the installer who is willing to give you an honest interpretation of the Tax Code, as well as tell you that the best person to ask is your accountant. In addition to the importance of getting those interpretations correct, there is a larger issue of whether or not you can trust installers who are either willing to tell you things they know to be untrue or simply have no idea what the truth is and make it up as they go along. As I said before, I’m not sure which situation is worse.
If you have any questions whatsoever, please do not hesitate to contact me directly. My direct dial phone number is (505) 944-4257, or my email is firstname.lastname@example.org.