Since you sell back more than you use, it's a business as far as the IRS is concerned. You'll report the income/expenses on SCH C. What I would suggest you do is treat it "exactly" like a business. That business has assets - namely the solar power panels, coverters, and any other equipment associated with the production of power. You paid for those panels. So the lesser of what you paid for them, or their FMV at the time they were placed "in service" in the business is the value of the business asset you'll use when listing your cost for the asset in the Business assets section. My guess is, what you paid for them is the value you will use here. Note that you include the "total" cost - not just what you paid for the panels themselves. It also includes the cost of installation, shipping, etc. The value will be depreciated over 40 years, and that depreciation is deductible from your taxable business gain each year. Any repairs or routine maintenance you pay to have done to the solar electrical system are a deductible business expenses too.
