Investors & landlords

You're talking about two separate things. The credit reduces your total cost, and the net cost after the credit is what you would depreciate over 5 years, so you can actually do both.  By the way, the original question was a bit confusing, since he may have been referring to labor to install  instead of the total cost for materials and labor.  Regardless, when calculating amounts to depreciate or for the credit, include all costs: materials, labor, any permit fees, etc.

I'd like to refer to a 10/19/17  article in the newsletter "Tax Advisor " by Kenton D. Swift, CPA, Ph.D.

"....there continues to be confusion about whether the 30% solar energy tax credit on the cost of installing solar panels is available when the panels are used in residential rental properties the taxpayer owns. At least part of the confusion is because solar energy tax credits are available under two separate Code sections, Sec. 25D and Sec. 48.

Residential solar credit

Sec. 25D provides a solar tax credit to an individual taxpayer when the panels are installed for use in the taxpayer's residence. Under Secs. 25D(d)(1) and (2), solar water-heating panels and solar electric (photovoltaic) panels must be installed for use in a dwelling located in the United States and used as a residence by the taxpayer. Thus, Sec. 25D does not allow a credit when solar panels are installed for use in a residential rental property the taxpayer owns.

In Notice 2013-70, which provides guidance on Sec. 25D, the IRS further clarified this issue. Question 6 in the notice asks whether the credit is available for improvements made to a second home, for example, a vacation home or an investment property. In its answer, the IRS specifically states that while the credit may be taken for solar panels installed for use in a vacation home, the taxpayer may not claim the Sec. 25D credit for expenditures for improvements made to an investment property, such as rental property, that is not also used as a residence by the taxpayer.

Business credit

While Sec. 25D does not allow a solar tax credit for the cost of installing solar panels for use in residential rental property, Sec. 48 is more favorable. Sec. 48 provides for a solar energy tax credit for the installation of solar panels as part of the general business credit under Sec. 38. Under Sec. 48(a)(5)(D), property that is eligible for the general business credit is tangible property for which depreciation is allowable. Solar panels installed for use in residential rental property meet this requirement.

This is not quite the end of the story, however. Under Sec. 50(b)(2), business credits are generally not available for property that is used predominantly to furnish lodging. At first glance, this subsection would appear to prevent solar panels installed for use in residential rental property from being eligible for a business credit.

A further reading of Sec. 50(b)(2), however, indicates that the restriction on the availability of the general business credit for property used to furnish lodging does not apply to "any energy property" (Sec. 50(b)(2)(D)). Sec. 48(a)(3)(A)(i) defines equipment that uses solar energy to generate electricity or to heat or cool a structure as energy property, as long as it is not used to heat a swimming pool.

The result is that solar panels installed on residential rental property the taxpayer owns should be eligible for a solar tax credit under Sec. 48, assuming other requirements for the credit are met. This is good news for taxpayers hoping to take advantage of the 30% tax credit for the cost of solar panels installed on residential rental property.

https://www.thetaxadviser.com/newsletters/2017/oct/credit-residen[product key removed]s.html