BREAKING: The IRS Issues Private Letter Approving an Energy Storage Retrofit for Tax Credit

by Anna Gretz
March 2, 2018
Home Battery

Just today, the IRS released a private letter with some great news for the home energy storage world.

Last June, proud home solar + storage owners submitted a letter to the IRS for an important clarification of the IRS tax code. The couple already had a solar power system, and retrofitted it with energy storage, hoping that it would be eligible for the ITC 30% tax credit. They weren’t disappointed. In a private letter, the IRS stated that the purchase and installation was approved.

The Details

In a previous year, the couple bought a solar energy system for the purpose of generating electricity through solar power to use in their home. They used an installer to set up a grid-connected solar pv system which met the requirements of the IRS for a “qualified solar electric property expenditure,” meaning they could claim a tax credit then and there for 30% of the cost of their solar energy installation.

But they weren’t done. They wanted an energy storage upgrade.

This year, the couple bought a home battery that they wanted to integrate into their existing solar system. Their energy storage installation included a 13.5 kWh battery, an inverter to convert energy from their solar panels for charging, all the proper wiring required for installation, and a software management tool to make the use of their new batter easy and efficient. Based on the specific setup of this retrofit, the home battery can only be charged from their solar energy system, and this is monitored by their software frequently. The couple can prove, second by second, that all of the energy used to charge their battery come straight from their solar pv.

According to the software controls the couple set in place, the energy generated by their solar panels would be stored in the home batter to be used later in the day, or at night (which is perfect, since that’s exactly when the sun isn’t around to generate more power.) The couple also specified that their home battery setup would enable them to effectively disconnect from the power grid if it ever went down, using solar and storage exclusively to meet their electrical needs.

Basically, this couple built their own energy empire, making sure they had their own source of secure energy, anytime they needed it.

There was only one thing left to do--make sure they could get a tax credit for the new energy storage component, just like they did for the intstallation of their original solar energy system.

In order to make this happen, their new battery would have to pass as a “qualified solar electric property expenditure” within the IRS code (25D(d)(2)). This is where their monitoring software became very important. They had to be able to show that their home batter was ONLY functioning as a device to store ONLY solar energy. They succeeded.

They also had to argue that their purchase still qualified, even though it was in the taxable year after they installed their solar PV system. In other words, during this specific tax year, they were only installing a home battery, and they had to make that battery fit under the requirements of a “solar electric property” cost. All things considered, this was a pretty narrow window, especially when it comes to government tax code. But they did it.

The IRS concluded that the couple’s home battery fit under code 25D(d)(2) as a “qualified solar electric property expenditure;” a cost incurred by an installation of property which uses solar energy to generate electricity for use in a dwelling until located in the United States, and used as a residence by the taxpayer. This was win #1, and seems like it was passed at least in part because the couple planned to only use the battery to store the energy generated by their solar panels, and not directly from the grid.

Secondly, the IRS decided that the battery cost qualified, even though it was installed in the tax year after the solar pv was set up. Since they had already ruled that the battery itself was a “qualified solar electric property expenditure,” the previous qualifying installation wouldn’t disqualify them from receiving the tax credit yet again. This is awesome.

Important Note: The IRS included in this private letter, just like they always do, a caveat stating that the ruling is only directed to the specific taxpayer who sent the initial letter, and that this ruling won’t stand as a precedent for future inquiries. That aside, it’s still a big win for residential energy storage, and if the logic here is sound, it will continue to be sound in the future.

We’ve said time after time that solar is better with storage, and we can all agree that solar + storage is even better with tax credits. We celebrate with the couple who lead the residential energy storage world toward this big win with the IRS, and can’t wait to see where the future leads.

You can read the original letter here: