I rent out a portion of my house and just got solar panels, can I write off a portion of my monthly loan payments?

[Anonymous]

I rent out 20% of my home (an in-law unit to be precise) and therefore have always written off 20% of utilities paid for the year.

I recently got solar, so now my utilities will go down significantly, but will have a monthly loan I need to pay off.  Since this is an improvement to the property, am I still entitled to write off 20% of what I pay for the solar panels each year?  Would this cause problems for the tax credit we will receive come tax time?

[Critter]

The solar panels are assets to be depreciated not expensed ... so you cannot deduct the payments however the business portion of the interest on the loan can be prorated.  

[Anonymous]

Great call.

But since I am owner occupied, will I be able to claim both the Federal tax credit AND depreciation?

[Carl]

For starters, I would expect the solar panels qualify as a property improvement. Therefore the cost of those panels (including what you paid for delivery, installation, etc) add to the cost basis of the property. this has *NOTHING* to do with rental stuff. If you paid $50K for solar, then that $50K gets added to your *TOTAL* cost basis. It's that simple. Period.

For the rental portion you will enter your cost for this property improvement in the Assets/Deprecation part of the program in the Rental & Royalty Income section. You will enter your *TOTAL* costs. Then since you rent out 20% of your primary residence, you will indicate that it is only 20% business use. This way, the program will take care of depreciating your costs *for you* based on that 20% business use. This takes care of the depreciation stuff. Now for the loan you took out for solar system.

You can not deduct the borrowed amount from anything. Period. However, you can claim the interest you pay on the loan each year, since this is "IN FACT" a property improvement. You can only claim 20% of the Interest on SCH E in the Rental Expenses section, and you will enter it the same place you enter the 1098-Mortgage Interest Statement. You can enter that 20% of the interset as "other interest" if you like. But I would suggest you enter it "AS IF" you received a 1098-Mortgage Interest Statement, since the loan for the solar stuff has no relationship what-so-ever with the mortgage loan.

The remaining 80% of the interest is claimed on SCH A. If you did *NOT* elect to have the program do the split for you in the SCH E section of the program, then you'll enter that 80% under the Deductions & Credits tab in the "Your Home" section in the same place where you will see 80% of your mortgage interest already claimed.

One thing I can not stress enough is to *READ* *THE* *SMALL* *PRINT* or you may find yourself double-dipping on your interest claim on the SCH A which will result in you having to pay the IRS back taxes, interest, penalties and fines for incorrect reporting.