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You ask, we answer: Any penalty for selling my solar house after getting tax credits?

Avatar for Dan Hahn
Published on 01/02/2010 in
Updated 09/05/2019

Rollin from North Carolina contacted us just a while ago to ask:

If you install a solar panel system, receive the applicable tax credits and then sell the house in two years, do you have to refund the tax credits? If not, is there any penalty? … I have a 20 year shingle roof…should I consider re-roofing prior to installing solar panels and, as a NC Outer Banks resident (Ocracoke), what is the hurricane experience? Corrosion experience? Average sunlight here in Ocracoke?Thanks, Rollin

ANSWER: Rollin, the tax credit issue is complicated and you should definitely double check our advice here with your local tax geek. We’re solar geeks, so the IRS doesn’t really count us as tax authorities.  Nevertheless, it is our understanding that you will not have to refund any of the portion of the tax credits that you’ve received thus far. Why do I say “thus far?” Because your 30% Federal Tax Credit vests over 5 years…. Therefore, you will only get 40% (2 years worth) of the full 30% Federal Tax credit. Again, please double check with your tax person, but that’s our understanding of the law from another solar financial guru, Andy Black.  (Of course, Andy is a solar guru, not a tax guru.) Please see below from someone who knows better for commercial and residential tax consequences.

Now to the easier answers:

If your roof is older than 8-10 years, you should definitely re-roof before installing the panels. That way, you won’t have to go through the added headache of snapping the panels off later and having to deal with re-installing the racking system. Also, if you coordinate your roof replacement with your solar installer, both warranties will stay intact. If you take your panels off later, re-roof, then reinstall, you may be voiding the original installation warranty of either the roof or the solar installation.

Regarding winds, solar racking systems have gotten so good over the years that you don’t have to worry so much about them blowing off your house in a hurricane as much as you may have to worry about your entire roof being blown off. That said, after going solar, you should cover the panels with your homeowners insurance to prevent any ill feelings down the road. Corrosion can happen when installations are done by amateurs. The equation looks like: wet + electric current + salt water + exposed conduit = big problem. This is why it’s important to go with an experienced, licensed crew, who aren’t going to cut any corners. Most solid solar installation outfits will warranty all their work for at least 5 years, though some of the best out there will warranty their work for 10 or more. (Btw, solar panels nowadays are warrantied to be producing at at least 80% of their original capacity at year 25, so you know they’ll still be kicking out significantly more than that then because the solar panel manufacturers don’t want to be shelling out new panels all over the country.)

We’re not Ocracoke meteorologists, but we know North Carolina gets significantly more sunshine than say, Germany, which has more solar installed per capita than anywhere else in the world. What makes solar make financial sense isn’t the sunlight, insomuch as the combination of available state rebates, financing, and tax credits (which NC has in spades). Cheers,

– Dan

Last modified: September 5, 2019

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Ben ZientaraMauricePAMDanelleEvil Ed Recent comment authors
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PAM

I AM SOLD MY HOUSE (JUST GOT SOLAR SYSTEM INSTALL 2 MONTH AGO). ALSO BOUGHT A HOUSE AND WANT TO HAVE SOLAR INSTALL. CAN I CLAIM TAX CREDIT FOR BOTH HOUSE ON TAX RETURN 2016? PLEASE ANYONE KNOW HELP THANK

Danelle
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Danelle

We are building our own solar panels and system. So far we have our trial system up and running, completely powering our shed. We plan to use our monthly savings to build more panels and such. Once we start building the panels and getting the system rocking for our home, can we claim the credits as we build, or does the system have to be complete before we can claim the tax benefits?

Evil Ed
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Evil Ed

OK, I would like to know the following; Say a company in CA installs a solar system and leases it to me. The latter gets all the incentives, tax credits, handshake from Arnold and what have you.. Two months later and for whatever reason, I sell my house for which I am forced to pay the leasing company for the solar system (before the sale closing) the pre agreed price in a case like this, so it will remain installed on my roof as part of my house. Here comes the interesting question: The leasing company got all the incentives,… Read more »

Sam Harriman
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Sam Harriman

as your local installer about Galvanic corrosion :)

Tor a.k.a. "Solar Fred"
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Tor a.k.a. "Solar Fred"

Justin, this is much better clarification than my original understanding. Thanks, man! You rock, always.

Justin Hoysradt
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Justin Hoysradt

Residential Property: According to the SEIA Tax Manual for Solar Energy Professionals. Item #6: What if I sell my house, can I still claim the credit? A: The residential credit is not recaptured if the house is later sold. However, the homeowner will have had to reduced his tax basis in the house by the amount of the credit. He is more likely to have a gain on the sale of real property. Commercial Property According to the ARRA guidelines for the Section 1063 Grant in Lieu of Tax credits Page 18 article 7. Entitled “Recapture” If the applicant disposes… Read more »

Maurice
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Maurice

Why does Turbo tax claim i have to pay the investment tax credit back if I sale the house

Ben Zientara
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I don’t know why TurboTax is claiming that, Maurice. Anyone who installs solar is eligible to claim the ITC based on costs they paid for the system. Once those costs have been paid, the taxpayer can claim the ITC and is never required to pay it back.

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