LLC partnership and Investment Tax Credit

[smvee01]

Hello,

We have installed a solar system in 2020 at our business, which is a multi-member LLC. We understand the 26% federal solar investment tax credit is shared by the partners. But my questions are where does it go on 1065 and schedule K1 or how is the credit reported to the partners. I reviewed the K1 instructions but it is bit confusing. Do we need to use form 3468?

Thanks

[JeffreyR77]

The Partnership is a pass -through entity, as such it pays not tax, and has not need for a tax credit. 

The Investment Tax Credit for the solar tax credit is calculated on Form 3468 and is not added to Form 1065. 

The basis of the solar property included in the solar tax credit is reported on each member's K1 in box 20. 

Form 3468 will need to be printed and mailed in with either the tax return or Form 8453.

Each member will claim their credit on their individual tax return.

[smvee01]

Thanks for your answer, but I found out from TaxAct instructions and IRS instructions that PTE does not have to file form 3468. TaxAct creates an investment credit worksheet that gets attached to K1 and provided to the partners. 

[Solarex]

In my case we had a 458,000 investment in the solar array.  95% to one partner and 5% to the other

do i understand that 459k  x 95%   0r   $436,050 would go in one K-1  box 20?  or does the whole $459,000 go in the box 20 of each K-1?

And that would have an supporting document or worksheet attached?

[Solarex]

where on the personal return is the tax credit going? in other words how does it get from a basis number on k-1 BOX 20  to a credit number in the personal return?

[AliciaP1]

The value should be allocated according to the partnership percentages reported on the respective K-1s.  The K-1 would then include a statement identifying the solar array.

On the personal return, the credit gets input under the energy improvement credits.  To do this in TurboTax please follow these steps:

1. Open or continue your return, if you don't already have it open.
2. In TurboTax, search for energy improvements. (Don't search for energy credit as this will take you to the wrong place.)
3. Click the Jump to link in the search results.
4. At the bottom of the Energy-Saving Home Improvements screen, answer Yes and continue. Follow the instructions.
   • Page 1 of the interview covers solar, geothermal, wind, and fuel cell. If you're looking for other improvements, like doors, windows, furnace, air conditioning, or heat pump, just keep going to the next page.

@Solarex

[sustainnovators]

I am completing the 1065 return for my LLC (partnership) and I have the same situation. I was confused because when I completed the information on form 3468, the resulting K-1s have no entry for line 20 code E. The IRS States that this should be where the basis of the energy property is reported.  Also, on form 3468, line 14, the sum is not calculated.  The only thing I can figure is that there is a bug in the program. 

[gzimmerman1946]

I ran into the same problem & I agree it is a bug.  I was able to enter the line 20 code E information directly on each LLC member's K-1.  But then my CA state K-1's contain this info twice & I may have to "override" to get rid of it.

[sustainnovators]

I don't know how to report a bug to Turbotax. But it I ran the company I would want to know. I hear that Taxslayer handles it correctly.

[gzimmerman1946]

I also do not know how to report a bug.  The last time I was certain there was a bug I did talk to someone at TurboTax & they assured me that TurboTax did not make mistakes & that it must be my problem.

[AliciaP1]

For Forms 1065 and 1120-S you are not required to complete Form 3468 for energy property credits as the business entity itself is not eligible for the credit.  You are required to report the basis of the property on Schedule K for either 1065 or 1120-S and this is how the information is apportioned to partners, shareholders, or members.

Per IRS instructions for Form 3468:

Generally, (a) an estate or trust whose entire qualified rehabilitation expenditures or bases in energy property are allocated to beneficiaries, (b) an S corporation, or (c) a partnership does not have to complete and attach Form 3468 to its tax return. However, if the estate or trust, S corporation, or partnership is the owner of or passing through qualified rehabilitation expenditures for a certified historic structure, the entity must complete lines 11h and 11i of the form and attach it to its tax return even if the credit is not being claimed by the entity.

To eliminate your Form 3468 and enter the basis correctly to Schedule K please follow these steps for either Form 1065 or 1120-S:

1. Within your return click on the Forms icon in the upper right of your screen
2. Click on Form 3468
3. In the form preview at the bottom of the screen click Delete Form
4. Click on Form 1065 p4-5 (or Form 1120-S p3-5)
5. Scroll down to line 20 (or line 17) and find Items reported in Box 20 of Schedule K-1 (or Items reported in Box 17 of Schedule K-1)
6. In the dropdown box on the left field, choose E-Basis of energy property (or D-Basis of energy property)
7. The middle field will self-populate
8. In the right-hand field enter the total dollar amount of the basis of the property
9. Review your Schedule K-1 for each partner, shareholder, or member and see code E for Line 20 (or code D for Line 17) on each
   • You will need to complete a separate schedule to include with each K-1 sent out describing the property and listing the dollar value of the apportioned basis per the allocation on the K-1

@sustainnovators

@gzimmerman1946

[sustainnovators]

Thanks @AliciaP1, that was helpful. I assume that the basis would be the actual basis, not the reduced basis that the business would need to report for depreciation purposes (see Guide to the Federal Investment Tax Credit for Commercial Solar PV - 2021.pdf .

It would be helpful if Turbotax business were to provide more guidance in the program so that people like me do not have to spend precious hours researching the topic! 😁

At least we can now find the answer in the forum!

[AliciaP1]

That is correct.  Report the beginning basis before depreciation.

@sustainnovators

[donkyhooty]

For 2024, I only see Box 20 Code E  shows the energy basis to be inputted into the following field:

Solar Property

2020-2022 Construction

with the IRA in 2022, since the ITC was erupted, for projects constructed in 2023 and 2024, shouldn't there be 

Solar Property

2023-2024 Construction

????