SECTION 5. QUESTIONS AND

ANSWERS RELATING TO § 25D (RESIDENTIAL ENERGY EFFICIENT PROPERTY)

.01 General Questions . Q–21: A taxpayer may claim a § 25D credit if a qualifying property is installed in or on an existing home or a newly constructed home. In the case of a newly constructed home, how does the taxpayer determine the cost of the qualifying property under § 25D?

A–21: The taxpayer may request that the homebuilder make a reasonable allo

cation or the taxpayer may use any other reasonable method to determine the cost of the property that is eligible for the § 25D credit. See Q&A 8 for information concerning labor costs.

Q–22: A homebuilder constructed a house in which qualifying § 25D property was installed in year 1. The house was not sold and used as a residence until year 2. May a taxpayer that buys the home for use as a residence in year 2 claim the § 25D credit?

A–22: Yes. As long as the taxpayer begins to use the house as a residence before 2017, the taxpayer may claim the § 25D credit in year 2. Section 25D(e)(8) treats an expenditure in connection with the construction or reconstruction of a structure as made when the taxpayer begins to originally use the constructed or reconstructed structure as a residence.

Q–23: Same facts as Q–22, but the house was a model home, and the qualifying property was used during the time it was marketed for sale. May a taxpayer claim the § 25D credit in year 2?

A–23: Yes. The expenditure is treated as made when the use of the structure as a residence begins.

Q–24: In 2010, Taxpayer A purchases and moves into a newly constructed home that contains qualifying § 25D property. Taxpayer A claims the § 25D credit in 2010. In 2013, Taxpayer A sells the home to Taxpayer B. Is Taxpayer B eligible for a credit on the same § 25D property?

A–24: No. Section 25D(e)(8) generally treats an expenditure as made when the original installation of the qualifying property is completed. In the case of an expenditure incurred in connection with the construction or reconstruction of a structure, the expenditure is treated as made when the original use of the constructed or reconstructed structure as a residence by the taxpayer begins. Thus, only the taxpayer who begins the original use of the constructed or reconstructed structure as a residence or the taxpayer using the home as a residence when the property was originally installed is eligible for the tax credit.

.02 Solar Electric Property Q–25: If a taxpayer installs solar electric property other than directly on the taxpayer’s home, may the taxpayer claim the § 25D credit?

A–25: Section 25D(d)(2) defines a qualified solar electric property expenditure, in part, as an expenditure for property that uses solar energy to generate electricity for use in a dwelling unit that is used as a residence by the taxpayer. Therefore, if solar panels that are not directly located on the taxpayer’s home use solar energy to generate electricity directly for the taxpayer’s home the taxpayer may claim the § 25D credit.

Q–26: A taxpayer purchases solar panels that are placed on an off-site solar array and connected to the local public utility’s electrical grid that supplies electricity to the taxpayer’s residence. The taxpayer enters into a direct contractual arrangement with the local public utility that supplies electricity to the taxpayer’s residence to allow the taxpayer to provide electricity to the grid using a net metering system that measures the amount of electricity produced by the taxpayer’s solar panels and transmitted to the grid and the amount of electricity used by the taxpayer’s residence and drawn from the grid. The contract states that the taxpayer owns the energy transmitted by the solar panels to the utility grid until drawn from the grid at his residence. Absent unusual circumstances, the panels will not generate electricity for a specified period in excess of the amount expected to be consumed at the taxpayer’s residence during that specified period. Can the taxpayer claim the § 25D credit?

A–26: Yes. Section 25D(d)(2) defines a qualified solar electric property expenditure, in part, as an expenditure for property that uses solar energy to generate electricity for use in a dwelling unit used as a residence by the taxpayer. The taxpayer’s expenditure for off-site solar panels under this type of contractual arrangement with a local public utility that supplies electricity to the taxpayer’s residence meets the definition of qualified solar electric property expenditure.

Q–27: A taxpayer purchases and installs solar electric property to generate electricity for the taxpayer’s own home and to allow the taxpayer to sell excess electricity to a utility. Unlike the taxpayer in Q–26, this taxpayer generates more than a minimal amount of excess electricity. Does this taxpayer qualify for the

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§ 25D credit on the full amount of the solar electric property?

A–27: No. Under these facts, the taxpayer may not claim the § 25D credit for the full amount of the solar electric property expenditure because the property not only generates electricity for use in the taxpayer’s home, but it also generates electricity for sale by the taxpayer. The taxpayer may only claim the § 25D credit for the portion of the solar electric property expenditure that relates to the electricity generated for use in the taxpayer’s home. In addition, the taxpayer may be able to claim the § 48 credit for a portion of the solar electric property expenditure if the requirements of § 48 are satisfied.

Q–28: Is an expenditure for a solar air heater eligible for the § 25D credit?

A–28: No. Section 25D(d)(2) defines a qualified solar electric property expenditure, in part, as an expenditure for property that uses solar energy to generate electricity for use in a dwelling unit. Section 25D(d)(1) defines a qualified solar water heating property expenditure, in part, as an expenditure for property to heat water for use in a dwelling unit if at least half of the energy used by such property for such purpose is derived from the sun. A solar air heater that warms air and does not generate electricity or heat water is not eligible for the § 25D credit.

Q–29: Is an expenditure for a solar powered exhaust fan eligible for the § 25D credit?

A–29: Only the component part of a property that actually generates electricity for the dwelling unit is eligible for the § 25D credit. If a solar panel on a fan generates electricity to power the fan for use in the dwelling unit, the cost of the panel component may be eligible for the § 25D credit if all the requirements of § 25D are met; however, the entire cost of the fan is not eligible. Additionally, § 25D(e)(1) specifically allows certain labor costs to be taken into account when calculating the credit. Under this provision, a taxpayer may take into account only the labor costs allocable to the qualifying component when calculating the credit.

.03 Small Wind Energy Property . Q–30: May a taxpayer claim the § 25D credit for the purchase of small wind energy property made from remanufactured wind turbines?

A–30: Yes. Section 25D does not require that the original use of the qualified property or parts of the property begin with the taxpayer.

.04 Geothermal Heat Pump Property . Q–31: A taxpayer contacts a seller to inquire about the installation of a geothermal heat pump to heat his home. The seller/ installer informs the taxpayer that the following items must be installed in addition to the geothermal heat pump: heat exchange equipment in the ground outside of the house, a distribution system for the home, and a back-up emergency heating or cooling system. Which of these costs, if any, are eligible for the § 25D credit?

A–31: Only the cost of the heat exchange equipment in the ground outside the house can be eligible for the § 25D credit. The costs for the distribution system for the home and a back-up emergency heating or cooling system are not eligible for the credit because they are not incurred for qualified geothermal heat pump property. Section 25D(d)(5)(B) defines qualified geothermal heat pump property as any equipment that (1) uses the ground or ground water as a thermal energy source to heat the dwelling unit or as a thermal energy sink to cool such dwelling unit, and (2) meets the requirements of the Energy Star program in effect at the time that the expenditure for such equipment is made. Section 25D(e)(1) provides that expenditures for piping and wiring to interconnect qualified property to a dwelling unit are eligible for the § 25D credit. However, nothing in § 25D extends the credit to other auxiliary equipment such as distribution systems within the dwelling unit or backup emergency heating and cooling systems.

Q–32: Is a manufacturer of geothermal heat pump property that provides a certification pursuant to Notice 2009–41 required to become an Energy Star partner?

A–32: No. A manufacturer of geothermal heat pump property is not required to become an Energy Star partner to provide a certification pursuant to Notice 2009– 41. However, the geothermal heat pump property must meet the requirements of the Energy Star program in effect at the time the taxpayer purchases the property. Furthermore, any manufacturer that provides a certification must retain in its records documentation establishing that the

property meets those requirements and, upon request, make such documentation available for inspection by the Service.