The Internal Revenue Service has ruled that an individual investor in a community-shared solar array in Vermont is eligible to take advantage of the 30 percent federal residential Income Tax Credit available under Section 25D of the Internal Revenue Code.
The IRS issued its decision in a private letter late last month to Roland Marx, who will now save $2,600 on his $8,700 investment in the member-managed 150-kilowatt Boardman Hill Solar Farm.
There has been a rapid increase in community solar project deployments in recent years, but the question of whether or not these arrays qualify for the residential ITC has remained an area of legal uncertainty. The letter marks the first time the IRS has publicly weighed in on the applicability of the ITC to an investor in a net-metered, off-site community solar project. While the recent decision applies only to Marx, solar advocates say it's a positive signal for how the IRS could rule on future cases.
"Community-shared solar has led to remarkable growth in residential solar because it allows those without roof space or solar access to participate in the solar market," said Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA), in a statement. "This ruling helps pave the way for even more growth under the widely successful federal Investment Tax Credit."
“Although, by law, this letter ruling cannot be used or cited as precedent by other taxpayers, several cases acknowledge that a private letter ruling can be used as ‘persuasive authority’ or an ‘instructive tool,’” said Nicola Lemay, chair of the tax department at law firm Foley Hoag, which provided legal work leading to the issuance of the letter. “In general, letter rulings like this one may also be used by the IRS in its own interpretations, including by IRS employees who might consider it in issuing letter rulings to similarly situated taxpayers.”
According to the Department of Energy, 49 percent of households and 48 percent of businesses are currently unable to host a solar PV system. By opening up these markets, the DOE calculates that community solar could account for up to half of all distributed solar installed in 2020.
GTM Research expects the U.S. community solar market to add 1.8 gigawatts over the next five years, compared to just 66 megawatts installed through the end of 2014. If the ITC is applied to other shared solar projects, it could boost the number of deployments over the next year. The residential ITC is currently set to expire at the end of 2016.