Where do I take depreciation of solar energy investment of a business?

[peridesgeorge]

I am a landlord and  installed solar panels on my buildings.  It appears that we can't take tax credit but we can depreciate over the course of 3 or 5 years. Where do I find it? 

[Ashby · Accepted solution]

Just return to your rental section and edit.

Go through the interview and add the asset.

It looks like solar panels have a 5 year life. 

However, this year you can use 100% bonus depreciation if you would like to take the full cost as depreciation expense in 2018.

More importantly, I don't know your whole situation, but I feel like you are eligible for a Form 3468 Investment Credit for your solar panels.

You can take a 30% credit AND depreciate 85% of the cost of your solar energy panels.

To take this, you would have to fill out that form yourself and print and mail your return with that form attached.

You can fill out Form 3468 and then enter the credit in TurboTax by these instructions:

To enter the information in TurboTax, please follow these steps:

1. Click on Income & Expenses > Other Business Situations > Business Credits > Investment Credit
2. On the Investment Credits screen click on the Yes box.  

Here are links to Form 3468 and the Instructions - Your focus on the form is Page 2/Part III - Number 12b

https://www.irs.gov/pub/irs-pdf/f3468.pdf

https://www.irs.gov/pub/irs-pdf/i3468.pdf

From The Tax Adviser 10/19/17

https://www.thetaxadviser.com/newsletters/2017/oct/credit-residential-solar-panels.html

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.

Kenton D. Swift is a professor of accounting in the School of Business Administration at the University of Montana who teaches undergraduate and graduate tax courses.

[BGZ]

Form 3468 is a business tax credit. I have not been operating my single rental house as a unique business.
Am I eligible to take this credit anyway?

[operaflute]

But how do we "tell" TT that it is a 5 year property? Select "appliances, carpeting..."?
I'm seeing conflicting info: one place it says 5 y ear property, others it says 27.5.  Some say, yes, take the credit, than depreciate 85%, other says, credit not possible...

No idea how/where to get the correct information. IRS pubs not really helpful so far, either.

[MarilynG1]

@operaflute When you enter an Asset in the Rental Assets section, you choose the Asset Type.

Any assets (such as the rental property itself), or improvements to the rental property are 'Residential Rental Property' and are depreciated at 27.5 years.

Other assets have a built-in amount for years of depreciation (depending on what is considered the 'life' of the asset), you just need to choose the right category. 

Here are the most common:

• Three-year property (including tractors, certain manufacturing tools, and some livestock)
• Five-year property (including computers, office equipment, cars, light trucks, and assets used in construction)
• Seven-year property (including office furniture, appliances, and property that hasn't been placed in another category)

Click this link for detailed info on Depreciation of Business Assets. 

[operaflute]

How is it that we take a 30% investment credit but still depreciate 85%?

Thank you!

[DMarkM1]

US tax code allows depreciation on solar panels using basis that has been reduced by 1/2 of the solar energy credit taken.  Here is a link for reference.  For solar projects in 2020 the credit is 26% so the basis of depreciation will be 87% of cost.  

[operaflute]

Thank you. It's always nice to have gov't documentation of what I'm doing! (I never did find it in the Internal Revenue Code footnote at the bottom of this document, though I didn't try all that hard. This is sufficient for me!)