August 4, 2015 in Taxes

Dear Tax Talk,
I am considering having a solar photovoltaic system installed, but my roof shingles are worn out. I’m talking to a number of companies that sell solar systems and most of them say that if I have my home reroofed as part of putting in the solar PV system, then I can take the 30% federal tax credit on both the solar system and the cost of reroofing my whole house. I’ve had just 1 company say that I can claim only a 10% home energy credit (assuming the reroof is with energy-saving-rated shingles). Help! Who is correct? Is there a simple answer to my question?
— Pete

Dear Pete,
Uncle Sam encourages homeowners to make their homes energy-efficient by allowing a 30% residential energy-efficient property tax credit for the cost of “qualified solar electric property.” This includes the cost of the equipment, installation and materials related to the functioning of the system.

With regard to including the cost of the entire new roof: If a solar system is installed on a specialized, highly reflective roof that enables the generation of a significant amount of electricity, then that cost can be included also — but only to the extent that the reflective roof exceeds the cost of a normal roof.

While a credit may cover part of the cost of a solar installation, consider financing the rest of it with a personal loan.

Residential energy-efficient property credit

Includes costs of qualified property, such as:

  • Solar electric.
  • Solar water heating.
  • Small wind energy.
  • Geothermal heat pump.

Nonbusiness energy property credit

Includes products that meet or exceed Energy Star program requirements, such as:

  • Insulation material.
  • Exterior doors.
  • Metal or asphalt roof.
  • Windows and skylights.
  • Certain furnaces or hot water boilers.
  • Main air circulating fan.

You claim the credit on Part I of IRS Form 5695, Residential Energy Credits. It is available through 2016. The good news is that there is no limit on the amount of the credit available. Additionally, if the credit exceeds the amount of taxes you owe, you are allowed to carry it over to next year’s tax return.

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So what about those energy-saving-rated shingles? If they exceed the Energy Star requirements and have appropriate pigmented coatings or cooling granules, which are specifically designed to reduce heat gain in your home, then they will qualify for the nonbusiness energy property credit. You claim this credit on Part II of Form 5695, and the credit is 10% of your cost with a maximum credit of $500.

Thanks for the great question and all the best to you on your new roof project.

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