Does the federal Investment Tax Credit (ITC) apply to community solar projects?

Unfortunately, it still unclear whether and when the 30% residential solar Investment Tax Credit (ITC) applies to community or shared solar. In addition, since these projects vary in structure, claiming the tax credit may lead to additional complications due to other relevant tax rules.

 

In 2013 the IRS issued guidance saying the residential solar ITC (also called 25D credit after its location in the tax code) allows a homeowner to claim the tax credits for an off-site solar array IF the project that was owned by the taxpayer and the solar power being net metered was directly measuring the electricity produced by the taxpayer’s panels. In addition, the guidance stated that the rule only applies when the taxpayer signs a contract with their local utility in which the utility agrees to recognize the taxpayer’s ownership of the energy produced by their portion of the community solar project until that energy is virtually consumed by the taxpayer’s residence. Since these requirements were often in conflict with state net metering laws and rate making rules it was difficult to apply to most community solar projects.

 

However, in September 2015, the IRS issued a Private Letter Ruling to a taxpayer in Vermont who was trying to figure out if he could claim the ITC on the 10 panels he purchased as part of an off-site community solar project. While technically a private letter ruling only applies to its intended recipient, it is often interpreted as precedence for how the IRS would rule in similar circumstances. According to the letter, a taxpayers can use the 25D credits if the solar power generated by their share of the community solar project does not exceed their residential needs, the solar power generate is provided to the taxpayer's local utility, and the utility provides the taxpayer with a credit for their share of the energy produced by the entire community solar project.