Skylight and Energy Tax Credit

[AccTaxMan]

Taxpayer installed Velux skylights in his primary residence in 2020. According to the manufacturer website, their skylights are qualified for 26% energy tax credit. This taxpayer spent $6,000 to install two Velux skylights. If the manufacturer is correct, he would be eligible for $1,560 of energy tax credit.

http://www.veluxusa.com/help/tax-credit

But according the IRS Form 5695 instruction (Page 2), they put skylight under 'Nonbusiess Energy Property' and the credit is limited to a maximum of $500 only.

Did I misunderstand anything said on the manufacturer website or in Form 5695 instruction?

[TaxGuyBill]

The credit they are referring to is not for windows, it is for the solar powered part of it. Just like other solar panels.

I have NOT looked into the details, but the eligibility could a bit questionable. While the solar portion would be eligible, at first glance a large portion of the $6000 cost (the window itself) may not qualify. But again, I have NOT looked into the details for this situation.

[Rapid Robert]

Agree with TaxGuyBill. I've seen the "Solatube" skylight also be discussed in this context. Of course the manufacturer has every incentive to mislead their customers and then print the disclaimer about how they aren't giving tax advice.

From the vendor's own estimator, you can see that the portion of the total that represents solar power generation is much smaller than than the amount they suggest is eligible for the credit. The marginal increase in cost for the solar powered model is only about $600, which would be about $150 credit.

Solar-Powered "Fresh Air" Skylight
$1,218.00 Skylight + Flashing
+ $1,500.00 Installation

Manual "Fresh Air" Skylight
$597.00 Skylight + Flashing
+ $1,500.00 Installation


The actual law:

§25D(d)(2) Qualified solar electric property expenditure

The term "qualified solar electric property expenditure" means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer.

[New York Enrolled Agent]

About 3 years ago I took the §25D credit for two Velux solar skylights. I don't dispute RR's posting but I relied on IRS Notice 2009-41 which confirms a taxpayer may rely on a manufacturer's certification. Subsequent IRS Notices have continued this reliance. Velux is not a little hole-in-the-wall company. I had the certification and a $4,500 expense on which I took the credit on my own personal Form 1040.

AccTaxMan - check out the notice - read the section I pasted and keep reading down for more.

.02 Manufacturer’s Certification

(1) In General . The manufacturer of property may certify to a taxpayer that the property meets certain requirements that must be satisfied to claim the credit under § 25D by providing the taxpayer with a certification statement that satisfies the requirements of section 3.02(3), (4) and (5) of this notice. The manufacturer may provide the certification statement by including a written copy of the statement with the packaging of the property, in printable form on the manufacturer’s website, or in any other manner that will permit the taxpayer to retain the certification statement for tax recordkeeping purposes.

[Rapid Robert]

I suspect there is a non-trivial degree of abuse associated with this. As I said, obviously the manufacturer has a conflict of interest and will error in favor of calling everything they sell even remotely associated with the actual solar property as eligible for the credit, and based on the notice, the IRS isn't generally going to contest the homeowner who relies on the manufacturer.

In the end, it's not really clear, and opinions vary on both sides. Here is a good article, which references Notice 2013-70:

https://www.thetaxadviser.com/newsletters/2019/aug/solar-energy-credit.html

"Q-29: Is an expenditure for a solar powered exhaust fan eligible for the §25D credit?

A-29: Only the component part of a property that actually generates electricity for the dwelling unit is eligible for the §25D credit. If a solar panel on a fan generates electricity to power the fan for use in the dwelling unit, the cost of the panel component may be eligible for §25D credit if all the requirements of §25D are met; however, the entire cost of the fan is not eligible. Additionally, §25D(e)(1) specifically allows certain labor costs to be taken into account when calculating the credit. Under this provision, a taxpayer may take into account only the labor costs allocable to the qualifying component when calculating the credit. [Emphasis added]
"

[Rapid Robert]

Here is perhaps another interesting example:

https://generark.com/

This firm sells two items: a portable battery storage unit , and portable solar panels that can be used to charge up the battery unit. The solar panels are optional; the battery can also be charged up from ordinary household electricity when there is no utility power outage, or a running automobile engine. There are no installation costs.

What is interesting is that the solar component may end up generating electricity that is only used in the dwelling unit once or twice every year or two (during an extended power outage). It is also possible that the portable battery unit could be used somewhere other than the dwelling unit, such as at an outdoor picnic in a park.

It is also notable that this manufacturer does not promote use of the solar property energy credit, even though I think the solar panels at minimum are a slam dunk for most purchasers.

Question: would you claim the credit for both items purchased together, or only the solar panels? What if the two items were purchased at different times? If you included the battery unit as part of the solar property, would you ask the client after the year of purchase whether they ever used it at a site other than their primary residence?

[New York Enrolled Agent]

I think you’re missing the point. The taxpayer CAN rely on the certification.

Go back to the Notice you cited (2013-70) and read the last paragraph in Section 2.

There’s no doubt in my mind AccTaxMan’s client can take the credit based on a certification in hand and the content of the IRS Notices.

[TaxGuyBill]

I think you’re missing the point. The taxpayer CAN rely on the certification.

They can rely on the certification that it qualifies, but I don't see anything that says that certification means the ENTIRE cost qualifies. I think we all agree the item qualifies, but as the Q&R that Robert pointed out says, only the solar portion seems to qualify.

[New York Enrolled Agent]

They can rely on the certification that it qualifies, but I don't see anything that says that certification means the ENTIRE cost qualifies. I think we all agree the item qualifies, but as the Q&R that Robert pointed out says, only the solar portion seems to qualify.

IRC 25D says installation costs are include in determining the credit for qualified property. What portion are you proposing to exclude? The manufacturer certifies the skylight qualifies.

This is not a hidden under the table claim by a “shaky” salesman. This is a major company providing a manufacturer’ s certification. The language in the Notices seems clear to me.

[TaxGuyBill]

The language in the Notices seems clear to me.

Then how do you explain the Q&A#29? Are you saying if that fan has a certification, the entire cost qualifies, but if there is no certification, only the solar part qualifies? To me, Q&A#29 is clear that the entire cost does NOT qualify under that Notice.

Again, I agree that the certification makes it solid that there is a qualifying product. But Q&A#29 seems clear that the IRS says the qualifying cost needs to be prorated, and I see nothing that hints that a certification means the entire cost qualifies.

[Rapid Robert]

I think you’re missing the point. The taxpayer CAN rely on the certification.

Not sure if you were addressing me, but I never said otherwise. I simple expressed my opinion that in many cases, the manufacturer's certification is self-serving B.S. and the IRS isn't going to spend much time contesting it especially for the smaller amounts involved ($2,000 skylight vs. $30,000 rooftop solar panels).

This is not a hidden under the table claim by a “shaky” salesman. This is a major company providing a manufacturer’ s certification

"Major" companies are found guilty of lying and cheating all the time. Google, Johnson & Johnson, Boeing, Wells Fargo (in fact all five of the largest U.S. banks) have all faced multi-million and in some cases multi-billion dollar fines in recent years for their crimes. Dozens more can be found with a quick internet search. The IRS has no information from the tax return to allow them to seek out the cheats. Compare to the requirements for the electric vehicle credit, ,where the make, model, year, and even VIN are required. If the manufacturer's EIN, address, and product number had to be provided directly on the tax form with each claim for the solar property credit, then the IRS would have a database to see where they might want to focus their enforcement efforts.

[New York Enrolled Agent]

Then how do you explain the Q&A#29? Are you saying if that fan has a certification, the entire cost qualifies, but if there is no certification, only the solar part qualifies? To me, Q&A#29 is clear that the entire cost does NOT qualify under that Notice.

Again, I agree that the certification makes it solid that there is a qualifying product. But Q&A#29 seems clear that the IRS says the qualifying cost needs to be prorated, and I see nothing that hints that a certification means the entire cost qualifies.

TGB - IMO - it is a false comparative of fan v. skylight. Certainly the fan could be viewed as a component of a system but the skylight???

But assuming arguendo you are correct, I ask again What portion are you proposing to exclude?

To me the skylight is a single unit - installation is done on that unit. Sorry but I see no excludable components that would make any sense whatsoever to me. I researched this before I took the credit for my own 1040 and I can SWAN.

For those who may not know, SWAN = Sleep Well At Night

[Rapid Robert]

TGB - IMO - it is a false comparative of fan v. skylight. Certainly the fan could be viewed as a component of a system but the skylight???

The fact that they sell a manually operated skylight, and the exact same skylight with a solar-powered motor to operate it for $600 more, makes it pretty clear that the solar part is an optional, add-on component and not integral to the skylight. I already pointed out the obvious, that only the $600 portion should be included, and the remainder which is not solar energy property should be excluded.

.[edit: I hope we agree that the glass pane of the skylight itself is not the solar panel -- solar panels are not clear glass panes to my knowledge. The solar powered motor is just a separate small solar panel which is used to power the motor which turns the crank to open/close the skylight. If this is not correct, then my interpretation would be different]

I would sleep well at night too, knowing that the IRS isn't going to audit the "certification" made by the vendor in its own self-interest. It would be like having your leased car smog checked by the same company that leases the car to you. Or your tax professional self-certify as a Circular 230 professional (including AFSP participants).

[AccTaxMan]

I have looked into that further. Now I think there is a difference between traiditonal skylights and some of the newer skylight, such as some of the latest models manufactured by Velux. I have read "Solar Electric Property" would qualfy for the 26% energy tax credit. And Velux said in the following link that their skylights qualify under "Solar Electric Property".

http://www.veluxusa.com/help/tax-credit

So is anyone of you now convinced that at least some of the models of Velux Skylights qualify for the 26% tax credit?

[New York Enrolled Agent]

So is anyone of you now convinced that at least some of the models of Velux Skylights qualify for the 26% tax credit?

It’s almost incredulous that you ask this question. Have you READ this thread?