You depreciate the home and the solar panels as a single asset, all classified as residential rental real estate and depreciated over 27.5 years.
Depreciation is based on the "lesser" of what your paid for the property when originally purchased, or it's FMV at the time placed in service. I have no doubt that for a property purchased more than 10 years ago, the original purchase price is lower, and therefore the basis you will use.
To that purchase price you will add the cost of any improvements you did "before" you converted it to a rental. So to that price you will add the cost of the solar panels installed in 2014. If you took the 30% solar tax credit back in 2014, you have to reduce the cost of the solar panels by the amount of the solar tax credit.
Personally, I would enter the property and the solar panels as two separate items. Solar panels don't last forever and they will need to be replaced at some point; probably within the next 10-11 years.
I figure that within the next 3-5 years the house is going to need a new roof weather you like it or not. (Insurance company will require it.) So removing those solar panels to put on the new roof is going to drive the cost of the roof up at least four-fold, if not more. You'll probably identify "problem" panels with the solar system when doing that too.
4. ASIDE: For a home when it is made a rental property, is there a way to depreciate the home value?
I can't make sense of that question. Land is not depreciated. You can only depreciate the structure and other assets "on" the land.
Basically, I am looking for ways to legally minimize my taxes
You're thinking exactly the way the IRS want's you to think - and it's wrong. What you "really" want to minimize is the depreciation you are required to take by law.
When you add up the deductible rental expenses of mortgage interest, property insurance, property taxes and the depreciation you're required to take by law, those for items alone will usually exceed the total rental income you receive for the entire tax year. Add to that other allowed rental expenses (repairs, maintenance, etc.) and you're practically guaranteed to show a loss on the rental property on SCH E every single year. Those losses will just "carry over" to the next year, meaning that your carry over losses will grow each year. You can't "realize" those losses until the tax year you sell the property.
When you sell the property, you are required to recapture all depreciation taken in the year of sale and pay taxes on it. Recaptured depreciation is taxed at capital gain tax rates, anywhere from 0% up to a maximum of 25%. It's perfectly possible that depreciation recapture can increase your taxable income on the sale (income being the gain on the sale, as well as recaptured depreciation) bumping you into the next higher tax bracket. Weather that happens or not, depends on the numbers. Therefore, that's why I try to keep my depreciation deduction as low as I legally can.
One thing that helps in the short term and bites in the long term, is that there is now a change in the law (in 2018 I think, but not sure) that allows you to deduct up to $25K of rental losses against "other ordinary income" if you qualify. While that may help you now, when you sell and have to recapture all that depreciation and don't have those carry over losses to help offset the gain on the sale, that higher tax bracket is really going to eat into the sale profit. But like I said, how much it "eats" just depends on the numbers.
Just remember, it is not common at all for long term residential rental real estate to actually show a taxable profit on the SCH E each year. So you may find it best to keep your depreciation as low as you legally can. Just my two cents on that point.
