On September 4, 2015, the Internal Revenue Service released a private letter ruling that could have meaningful impacts on the funding and development of certain residential solar developments, specifically community solar developments for use with residences.  This ruling provides that individual investors in a community-shared solar project can qualify for a federal renewable investment tax credit.

This ruling (PLR-2015-36-017) specifically relates to a community-owned solar power development in the State of Vermont and concludes that a taxpaying owner of such a project can avail itself of a 30% residential tax credit pursuant to Section 25D of the Internal Revenue Code (Tax Credit).  This Tax Credit is often referred to as a residential tax credit because it is tied to property that generates solar power for use in a taxpayer’s residence.  In that sense, this Tax Credit is somewhat analogous to the commercial investment tax credit for solar projects pursuant to Section 48 of the Internal Revenue Code.

Before this private letter ruling, residential tax credits could be claimed only by homeowners who installed their own solar power generation systems (or had them installed by financing and installation firms such as SolarCity or SunRun, among others).

The Vermont facility used net metering (where the applicable utility credits the residential solar power producer for the power the individual puts into the local grid) and likely will influence other jurisdictions that have similar net-metering laws and regulations (at present 43 states and the District of Columbia have similar laws) and enlarge the number of potential community residential solar projects and end users, which may include renters that cannot install solar panels on their rental properties.

This type of financing may have particular benefits in places such as Honolulu, Hawaii, where residential densities are high due to the predominance of high-rise buildings but where land capable of accommodating solar power developments is limited.

The current tax credits for solar power generation expire at the end of 2016, unless extended by Congress.