Can a renter who pays for solar panels with landlord's approval claim the residential energy credit in 2017

[Lisa995]

No, the credit is extended to homeowners only, sorry.

[tmnash01]

Please cite where in the Code that it states that you must own the residence to take the credit.

[Mike_M]

Could we get an authoritative follow-up to this question?  The instructions for Form 5695 do not say that the credit is only available to OWNERS of a home.  The only requirement is that it be the taxpayers residence.  Here's a quote:

Who Can Take the Credit
You may be able to take the credit if you made energy saving
improvements to your home located in the United States in
2019.
Home. A home is where you lived in 2019 and can include a
house, houseboat, mobile home, cooperative apartment,
condominium, and a manufactured home that conforms to
Federal Manufactured Home Construction and Safety
Standards.
You must reduce the basis of your home by the amount of
any credit allowed.
Main home. Your main home is generally the home where
you live most of the time

[Critter]

Here is your answer " You must reduce the basis of your home by the amount of any credit allowed" ... only OWNERS can reduce their basis, RENTERS cannot since they do not own the property.  

[Carl]

Could we get an authoritative follow-up to this question?

The original post that started this thread is from two years ago. The date/time you see for that first post is when it was transferred from the old message board to the new one. So don't let that fool you.

As a renter, you can not take the credit on property that you do not own. That is made quite clear where it states that the owner must "reduce their basis". Since you don't own the property, you have no basis to reduce. You flat out can not claim the credit.

[Mike_M]

Thanks for the responses. The requirement for homeowners to reduce basis does not seem to preclude non-homeowners from taking the credit. I think there is an assumption here that most taxpayers installing solar are homeowners. This explains much of the language, such as "your home." I cannot find any language which directly states that the credit is limited to OWNERS. Here's the language from 26 U.S. Code § 25D:

The term “qualified solar electric property expenditure” means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer.

So, other than TurboTax, can someone provide a citation that specifically and directly excludes non-homeowners from taking the residential energy credit?

[smarttees]

      Renters can take the credit. The instructions are misleading.....section 25D(f) says the increase in the basis which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed or in other words there is no basis increase allowed as the credit offsets the increase.....there is no requirement to reduce the basis except to offset the credit itself.

      The credit is for a dwelling unit as defined in section  280A(f)(1) and that is a house, apartment, condominium, mobile home, boat, or similar property, and all structures or other property appurtenant to such dwelling unit'......it includes an apartment......renters can take the credit.

[Anonymous]

You must reduce the basis of your home by the amount of any credit allowed.

how does a renter do this when the panels would be a leasehold improvement and thus owned by the property owner?  Thus the renter has $0 basis.     the tenant can't "sell" the panels to a subsequent tenant since the tenant doesn't have title.    It would be like a tenant selling the walls to his apartment. 

[Critter]

First you cannot do anything without the owner's written permission ... no solar company would attach panels to a roof you do not own as they can be sued by the landlord.  The landlord would have to be the contractor not the tenant. 

https://news.energysage.com/solar-panels-for-apartments-and-rental-properties/

Now if a renter wants to take advantage of the solar credit you can invest in a portable system that you can pack up and take with you when the lease is over ...   https://www.solarreviews.com/blog/solar-panels-for-rental-homes-and-apartments

And lastly ... the wording the IRS uses in the form 5695 instructions all indicate home ownership ... the form 5695 solar credit cannot be used on rental properties however there are other credits for landlords that may apply.  Sadly the IRS instructions do not always spell out everything in detail ...   read the entire section :

Who Can Take the Credit
You may be able to take the credit if you made energy saving
improvements to your home located in the United States in
2018.
Home. A home is where you lived in 2018 and can include a
house, houseboat, mobile home, cooperative apartment,
condominium, and a manufactured home that conforms to
Federal Manufactured Home Construction and Safety
Standards.
You must reduce the basis of your home by the amount of
any credit allowed.
Main home. Your main home is generally the home where
you live most of the time. A temporary absence due to special
circumstances, such as illness, education, business, military
service, or vacation, won't change your main home.
Costs. For purposes of the credit, costs are treated as being
paid when the original installation of the item is completed, or, in
the case of costs connected with the reconstruction of your
home, when your original use of the reconstructed home begins.
Costs connected with the construction of a home are treated as
being paid when your original use of the constructed home
begins. If less than 80% of the use of an item is for nonbusiness
purposes, only that portion of the costs that is allocable to the
nonbusiness use can be used to determine the credit.
Association or cooperative costs. If you are a member of a
condominium management association for a condominium you
own or a tenant-stockholder in a cooperative housing
corporation, you are treated as having paid your proportionate
share of any costs of such association or corporation.

Also the solar credit is not allowed on a rental but can be on a business use property that again you must own :  https://www.thetaxadviser.com/newsletters/2017/oct/credit-residential-solar-panels.html

[Critter]

Another source :  http://ncsolarcen-prod.s3.amazonaws.com/wp-content/uploads/2015/12/ResidentialITC_Factsheet_Final-de...

Can I take the credit if

…I AM NOT A HOMEOWNER?
Yes. You do not necessarily have to be a homeowner to claim the tax credit. A tenant-stockholder at cooperative housing corporation and members of condominiums are still eligible for the tax credit if they contribute to the costs of an eligible solar PV system. In this case, the amount you spend contributing to the cost of the solar PV system would be the amount you would use to calculate your tax credit.

However, you cannot claim a tax credit if you are a renter and your landlord installs a solar system, since you must be an owner of the system to claim the tax credit.

[Mike_M]

Thanks again for all the great responses. In this case, I am the homeowner. The renter is installing a solar PV system with my written permission. The renter intends to buy the house from me at some point in the future. However, if they end up buying a different house, the renter intends to uninstall the solar panels and move them to the new house. Again, I have approved this plan in writing.

The renter owns the solar panels and related equipment. They paid for all installation and inspections. It is not a permanent fixture on the house. It can be moved to another location very easily. The installer provided an estimate to do so.

Under these circumstances, I think the renter should be entitled to the credit. A few posts here seem to agree.

I realize this is an unusual situation. So there's not a lot of direct guidance. Documentation within the TurboTax program specifically says that the credit can only be taken by a homeowner. But that's not an authoritative statement. I can't find any official IRS language to support that guidance. If the credit was in fact intended only for homeowners, one would think that would be very clearly stated in the code and in the instructions to Form 5695.

Any additional thoughts on this would be very much appreciated.

[Critter]

Would have been nice if you had lead with all this information ...  remember the situation mentioned in my other answer where the renter can take the credit on panels that can be taken with them ?   I think this would qualify as "portable" in this case.   Make sure your written agreement includes any damage the panels may cause and the repairs to the roof when they are removed.  You and the renter really need to keep good records on this for at least 5 years in case the IRS questions this.

[Schneider2bikes]

I am a tenant with a regular income I am the principal resident in a  home I do not own. Just a regular guy with  limited knowledge about taxes. 
With permission from my landlord pending I want to purchase a solar system and install it on his roof. I intend to fully pay for it upfront, no credit needed and take the deduction on income taxes. I will agree to be fully responsible for any damage to the roof during my ownership and sign ownership over to him upon moving because I know I will be here long enough to make my Investment back and then some. Uninstalling is not an option for me the labor cost alone and the necessary repairs to the roof would be so high that such an endeavor would be nonsense. I see this as a win win for tenant and landlord. I’m not a tax guy but to me it’s clear. To qualify for tax credit the home has to be your principal residence. My residence is my home even though I don’t own it. Why should I be allowed to take  tax credits  if I’m not the user of the electricity I produce my investment to reduce my utility bill. That’s what the incentives are for. You also have to have a regular income to which  energy tax credit can be applied to. Makes sense to me, even if you own the home  you cannot apply it to your real estate taxes but it doesn’t say anywhere that homeownership is a requirement. 

You have to reduce your basis is something that I truly don’t understand the meaning of. I’m going on lim. If you own your home and take a tax credit on solar panels that you purchased because it is also your principal residence the value of your property should go up by approximately the amount of your investment. Since solar panels are not considered a permanent fixture to your house you may be able to reduce the base value so your real estate tax doesn’t go up. I might have embarrassed myself by being completely ignorant and wrong, but be that as it may I don’t think this “basis thing “ applies to me as a tenant it would be a concern to my landlord who is laughing all the way to the bank. Am I a fool or am I on to something 
any comments? 

[Opus 17]

@Schneider2bikes  

You are eligible for the solar energy credit if you pay to install a solar system on a home that you use as a residence.  It does not have to be your main residence and it does not have to be a home that you own.  You would be eligible for the credit if you paid to install a solar system on a house that you rent.  The credit is 30% of the cost, so if the system cost $10,000, you would get a $3000 credit on your tax return.

If you think that is not logical, you would have to address your complaints to Congress.

Your state may also have a credit, but you would have to investigate your state's rules to see if it was limited to a primary residence or a home you owned.  

I personally would not pay even the 70% share to improve someone else's property.   Real property is land plus anything that is permanently attached, and once the system is attached to someone else's house, it becomes part of their real property.   I don't believe there is a legal way for you to retain ownership (title) of part of their real property, unless they are willing to modify the deed and file it with the county clerk.  That being the case, I can't see any logic in paying for a major improvement to someone else's property.  They may love you as a tenant, but if they die tomorrow, your new landlord might want you out, and there's nothing you could do about it.

Lastly, because you would be paying for the system, the landlord may not include the system as a property improvement for purposes of depreciation or adjusted cost basis of the property.  The landlord can only take depreciation or expense deductions for improvements they actually pay for. 

Adjusted basis means the following:

Suppose you buy property for $100,000 and sell it for $150,000.  You have a $50,000 capital gain which may or may not be taxable.   If you invest $10,000 in permanent improvements, then your adjusted basis is $110,000, so your capital gain would only be $40,000.  If you only pay a net cost of $7000 for the improvement because of the tax credit, then your adjusted basis would be $107,000 and not $110,000.  You only get a basis adjustment for improvements you pay for, and if you pay less for the improvement because of tax credits or utility company rebates, you can only use the lower (net) cost as your adjustment, not the full price.

But in the case where you are paying for an improvement to someone else's property, you get no basis in the improvement at all (because there is no separate ownership) and the landlord gets no basis in the improvement, because they didn't pay for it.