Tax credits are available to those who choose to install a renewable energy system on their homes. Here is the detailed specifications to qualify for these tax credits.

To be eligible for the 26% credit, projects must start construction before 1 January 2021 and be in service before 1 January 2024. There are two separate methods to establish when construction started: physical work test and/or five percent safe harbor.

The physical work test requires work of a “significant nature” be started. This should be interpreted as physical progress integral to the renewable energy system, like scaffolds for a solar array. Activities that are preliminary in nature, like site inspections, system designs, etc., do not constitute “significant” b/c there is no tangible commitment.

The five percent safe harbor requires the taxpayer incur no less than five percent of the total cost of the project. There are some provisions for cost overruns (penalties for not accurately forecasting cost) that can retroactively cause a taxpayer to fail the safe harbor rule. For example, a contract of $100 on 31 December 2020 would require an initial deposit of $5 (5% of $100) to be eligible for the 26% ITC. If the final cost of the project in 2021 is $120, then the safe harbor rule would be violated because 5% of $120 is $6 and $6 > $5. The project is then shifted from 26% (2020) to 22% (2021) ITC. This issue is moot if the physical work test was concomitantly satisfied in 2020.

For either the physical work test or five percent safe harbor rule, projects must satisfy a continuity requirement. The exact nature of continuity is not defined and would be “determined by the relevant facts and circumstances” for a given project.

Contact Isaac Fees at: 303-420-7663 for more information.