CCA 200851108: Answering a newspaper's energy credit questions, with the guesswork left in

Plain-English summary

A local newspaper was preparing a feature on home energy tax credits and sent the Service a list of questions. This one-page email is a lawyer's internal reply passing along answers, and it is unusually candid about its own limits.

The opening line says the questions are very unclear and confusing, and that the answers assume they concern section 25D. If they were really about a different provision, the answers could be different. That caveat matters, because in 2008 there were two separate home energy credits with different rules. Section 25D covers residential energy efficient property, meaning equipment that generates energy at the home such as solar electric, solar water heating, fuel cells, and later wind and geothermal. Section 25C covered energy efficiency improvements to the building envelope and heating equipment, and it worked differently, with lifetime dollar caps and no carryforward. A homeowner asking about a tax credit for their house would not necessarily know which one they meant, and neither did the questioner here.

Within that assumption, three points come through.

Timing: the credit is claimed in the year the qualifying costs are incurred. Not when the equipment is contracted for, and not spread over its life.

Carryover: a homeowner who cannot use the full credit in 2008 may carry the unused amount forward to 2009. This is the feature that distinguishes section 25D. Because it is a nonrefundable credit and the qualifying installations are expensive, the credit often exceeds the tax owed, and without a carryforward much of it would simply vanish.

Stacking: a homeowner who carries an amount forward and also makes new qualifying expenditures in the following year gets both, the carried-over credit and the new one. Credits are computed on the expenditures incurred for the particular year, so a new year's spending starts a new computation rather than absorbing the old one.

The last answer reads in full: "I don't understand this question." It was released under section 6110 with the rest.

What is worth taking from a document like this is the shape of it rather than the law. Chief Counsel Advice includes ordinary working email, and the Service releases it whether or not it is polished. The answers here are correct as far as they go, but they are framed as help for a reporter, resting on an assumption the writer flagged and could not resolve.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: "The questions below are very unclear, and confusing," with the comma before "and"; "may carryover the remaining amount," written as one word where the verb takes two; and the questions themselves, which are not part of the release, so only the numbered answers survive.

Ruling snapshot

• Question: How do the residential energy credits work as to timing, unused amounts, and expenditures in a later year?
• Outcome: Advice given. Assuming the questions concern section 25D: the credit is taken in the year the qualifying costs are incurred; an amount unusable in 2008 may be carried over to 2009; and a homeowner with new qualifying expenditures in 2009 receives both the carryover and the new credit. The writer noted the questions were unclear, that a different code section would change the answers, and did not understand the fifth question.
• Key authorities: IRC section 25D.

Full text (IRS public release)

ID: CCA-101413-08 Number: 200851108
Office: CC:PSI:B06 Release Date: 12/19/2008

UILC: 25D.00-00

From: -------------
Sent: October 14, 2008 11:57 AM
To: -------------
Cc:
Subject: Energy Tax Credit Questions for Feature Story in Opelika-Auburn News HomeSeeker

The questions below are very unclear, and confusing. I answered the questions below with an assumption that the questions relate to section 25D. If that is not the correct code section, the answers could be different.

1. Taxpayers receive the credit in the year the qualifying costs are incurred.

2. If a homeowner had credit that he could not use fully in 2008, then the homeowner may carryover the
   remaining amount of credit to 2009. If the homeowner has additional qualifying expenditures for 2009, then the homeowner gets the carried over credit from 2008 and the new credit for 2009.

3. See answer to #2

4. The tax credits are based upon the qualified expenditures incurred by the taxpayer for the particular
   year. See my answer to #2.

5. I don't understand this question.