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Edwinjcb
Returning Member

Does the installation cost of a solar panel system qualify for the 30% tax credit for a residential rental property?

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

 

 

Edwinjcb
Returning Member

Does the installation cost of a solar panel system qualify for the 30% tax credit for a residential rental property?

TomD8,

 

please refer to this article by a CPA who believes the 30% credit is available for rental properties under a different code section. I note that you appear to have quoted him word for word in an earlier post, but somehow failed to mention the rest of his opinion.

 

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

Edwinjcb
Returning Member

Does the installation cost of a solar panel system qualify for the 30% tax credit for a residential rental property?

When met with contradictory information, it's probably  a waste of time to wonder how things got that way. Just follow the information that's most favorable to your position. If you get audited or the IRS disallows anything, then you might want to argue about it. Just my philosophy, but others may feel differently.

joe12pack
New Member

Does the installation cost of a solar panel system qualify for the 30% tax credit for a residential rental property?

Ok now that we agree we can take the solar rental property credit on 3468 can anyone explain to me how to fill this form out? 

 

The form starts by saying "If you are claiming the investment credit as a lessee based on the section 48(d) election, provide the following information.

 

1. Name of Lessor

2. Address of Lessor

 

As the landlord I guess I am the Lessor? And it's asking me for the address. Is that the address of the rental property? Or my home address? This is very confusing to me. Thank you in advance! 

KrisD15
Expert Alumni

Does the installation cost of a solar panel system qualify for the 30% tax credit for a residential rental property?

That would only be filled out by a person that was leasing the property for which they were taking the credit. 

Similar to leasing a car. 

Although you are a landlord, I assume you purchased, not leased, the property you want to take the credit on. 

If not, and you ARE leasing the property you want to take the credit on, (if you are leasing solar panels) then you are the lessee and the lessor is the company you are leasing from. 

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Does the installation cost of a solar panel system qualify for the 30% tax credit for a residential rental property?

Like many people have said here, you can get the credit, but it will be an ITC credit and not the typical solar credit folks are using for their primary residence. Percentage is going to be the same (26% for 2020-2022). 

You can also deduct 87% of the cost as a deduction (list as an “asset” for your rental property, select “appliances” and add 87% of what you paid for it). The depreciation will apply over the next 5 years, and it becomes a gift that keeps on giving. 

The ROI on solar actually tends to be even better on rental properties, because you get to deduct this depreciation on top of the ITC credit. Plus, it increases the rental value of the home in comparison to homes that do not have solar. In fact, as inflation and utilities go up in price (8% in California this year), you have a fixed cost and can split the savings with your tenants/make a profit/payoff faster as a result. 

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