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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28082
Experience:  Taxes, Immigration, Labor Relations
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I am considering purchasing a Solar Energy System Office

Customer Question

I am considering purchasing a Solar Energy System for my Office Building. I know that there is a 30% Investment Tax Credit available for installing Solar. I am being told that I can add a "developers fee" of as much as 15% of the total cost and thus increase the ITC.
Has the IRS ruled on this and if so, where can I find the documentation. The IRS.gov site was NO help at all.
Submitted: 5 months ago.
Category: Tax
Expert:  emc011075 replied 5 months ago.

Hi. My name is ***** ***** I will be happy to help you.

Investment tax credit equals to 30% of the basis of eligible property place in service during the year. To determine basis of your property you will add all cost associated with the purchase and installation. Developer fees are common in renewable energy projects and often included in the project's basis. However, to be included, the cost must be

- reasonable and common for the work done (how much would third party charge for the same project for example)

- should not exceed the fair market value of the project

- should be clearly stated in development service agreement

- should be paid to the development company

IRS is not providing any specifics and as always it is left to the discretion of the tax preparer (or the tax payer). However, lately IRS is taking a harder line on developer fees paid by project company affiliated to development companies.

There were couple of court cases, unfortunately the justice department ruled that the IRS has the discretion to decide what is reasonable and what is not.

The bot***** *****ne is, if 15% is common and reasonable, go ahead and include it. You may also look at some other options to deduct those fees, for instance through depreciation.

Customer: replied 5 months ago.
Unsatisfactory response. My question was that I am considering purchasing a system from a Solar Company. They are telling me that I can add a developers fee on top of their charges for the system to increase the ITC.
I am also complaining about being charged BEFORE I said that I was satisfied which is what I understood.
Expert:  Lev replied 5 months ago.

Different expert here...

You are asking about Residential Energy Efficient Property Credit which is based on section 25D.

A credit of 30 percent of the expenditures made by a taxpayer during the taxable year for:

qualified solar electric systems;

qualified solar water heaters;

qualified fuel cell property;

qualified small wind energy property; and

qualified geothermal heat pumps.

The credit for expenditures made for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property; the amounts of the other qualified expenditures eligible for the credit are not limited.

The statute - see here

https://www.law.cornell.edu/uscode/text/26/25D

(a) Allowance of credit

In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of—

(1) 30 percent of the qualified solar electric property expenditures made by the taxpayer during such year,

(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.

(e) Special rules

For purposes of this section—

(1) Labor costs

Expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property described in subsection (d) and for piping or wiring to interconnect such property to the dwelling unit shall be taken into account for purposes of this section.

.

So - the cost of labor are INCLUDED into calculation of the credit.

Thus if "developers fee" are actually installation cost - that cost is used to calculate the credit.

.

Regarding your charges - please be aware that experts do NOT have to your account - and all issues with payments - please directly communicate with the customer service.

Experts do not have any control or knowledge about your charges.

Customer: replied 5 months ago.
Both answers were totally off the mark and unsatisfactory. The charges will be disputed with the credit card company.
Customer: replied 5 months ago.
PS. Called customer service and got someone so heavily accented that I could not understand her. I am NOT HAPPY.
Expert:  Lev replied 5 months ago.

I understand that you are not happy - but I am not clear about reasons.
If you wish - we may work together and make you at least a little bit more happier?