Purchase price of rental property includes solar panels cost. i'm taking ITC for solar panels and depreciating over 5 years. Does this reduce the cost basis of home?

Yes, the amount of tax credit you receive will reduce your basis of rental property. 

However, since you are depreciating the solar panel cost basis after the credit separately from the residence, you would not reduce the depreciable basis of the residence itself. You already adjusted the total property basis by reducing the basis of the solar panels.