Can I claim the Tax Credit if I pay for installing a Solar Panel System in my parents / family home?

[pleblanc1]

We have a family home that I live in / take care of my elderly parents, they are the "Owners" and are on a fixed income. If I would to pay for the installation of Solar Panels can I claim the Federal Credits? It seems like this is possible. I live in Massachusetts, I do not know if this will also apply to state rebates as well?

[DoninGA]

On a federal tax return you can get the Residential Clean Energy Credit if you paid for the solar panels and the installation on a home.  The home does not have to be your main home.

See IRS Form 5695 Residential Energy Credits instructions - https://www.irs.gov/pub/irs-pdf/i5695.pdf

Sorry, cannot answer for Massachusetts.

[Opus 17]

@pleblanc1 

On the facts you stated, no, you may not claim the credit.

You can claim the solar power credit if you install a solar system on a home that you use as a residence. You do not have to own the home and it does not have to be your main residence, but it must be a home that you use as a residence at least some of the time.

[Mike9241]

I agree with @Opus 17 you can not claim the credit for federal purposes.

from code section 25D

(2)Qualified solar electric property expenditure
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.

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could your parents use the credit? if so, the way I would advise this be done is for you to make a gift to them of the money to pay for the system.     

[VolvoGirl]

I thought he said he lives in it?

[Opus 17]

@VolvoGirl 

Looks like it, I must have been focusing more on the headline, which says it is his parent‘s home.

@pleblanc1 

If you live in the home as your residence, and you are the person who pays for the installation, you can claim the credit. You don’t have to own the home, just live there.

There is a certain amount of legal and financial risk if you pay for improvements to a home that you don’t own. You need to be aware that under some circumstances, your parents might be forced to sell the home to pay for certain types of long-term medical care under the Medicaid program. I strongly recommend that you contact an elder law/estate planning firm to discuss how you and your parents can prepare for medical care and other expenses if their health declines, so that you can preserve the home and other assets, so that you can inherit them instead of being forced to sell them to pay for medical care. 

[NCperson]

because you state you live in the home, you are eligible for the credit. As noted above, the critical requirement is living in the home.

We have a family home that I live in / take care

unfortunately, the subject line didn't indicate you lived in the home, even though you comments did - leading to the confusion.

[88MPH]

Hi, 

So in my case, i don't own the home but it's my full time residence (that is in a Trust to me - so i'll own it someday) and i am the taxpayer.  Your statement says nothing about the property owner. Btw the house is paid for so i am the 'taxpayer' of the property taxes.  

This is directly from the IRS website: https://www.irs.gov/credits-deductions/residential-clean-energy-credit#claim

"Who Qualifies:

You may claim the residential clean energy credit for improvements to your main home, whether you own or rent it. Your main home is generally where you live most of the time. The credit applies to new or existing homes located in the United States....."

This explanation is directly related to Form 5695 listed on this link/page.

Seems pretty clear here, however i would like your or anyone else's thoughts. 

Here's the bigger question. How does this come into play if you are say, the renter, paying for the solar and taking the credit: 

"You must reduce the cost basis of your home if a residential
energy credit is allowed for any expense for any property. The
increase in the basis of the property that would result from the
expenses will be reduced by the amount of the allowed credit."

I assume this has to do with improvements so how does the property renter who's taking the credit account for the cost basis when they don't own the property, and will never be impacted by the eventual sale of the property in terms of any taxes owed?

[Opus 17]

@88MPH 

If you are asking about solar panels, the credit is available to a person who uses the "dwelling unit" as a "residence".  It does not have to be the taxpayer's only residence or main residence, just "a residence."  The taxpayer does not have to own the home.  (Although, for many reasons, I would suggest caution when installing permanent equipment on a house you don't own.)

Likewise, the statute says nothing about ownership, so the property owner is not eligible if they live someplace else.  

That means the credit can't be claimed by the property owner for a house they use as a rental but don't personally live in.  And the credit is not available for property that is not a "dwelling unit."  Although "dwelling unit" is not defined in section 25D, in other parts of the tax code, a dwelling unit must be a place where people can live and must have at a minimum, a bathroom and a place to sleep.  So the credit is not available for an office building, parking garage, duck blind, or backyard workshop.  (However, if the solar panels are installed on the backyard workshop because it has better light, but they power the house-dwelling unit, that's probably ok.) (Also note, there are separate credits available for business and rental property even if the section 25D credit is only allowed for a dwelling unit used as a residence.)

People get confused because different credits have different requirements, but the laws themselves are quite clear in each case.

https://www.law.cornell.edu/uscode/text/26/25D

[88MPH]

You make valid points regarding investing in another homeowner's home.  However, Medicaid will never force the sale of a home.  They will only attempt to collect anything due when the homeowner dies, so depending on the amount owed there could be a ton of risk there. 

[Opus 17]

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@88MPH wrote:

You make valid points regarding investing in another homeowner's home.  However, Medicaid will never force the sale of a home.  They will only attempt to collect anything due when the homeowner dies, so depending on the amount owed there could be a ton of risk there. 

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Individual circumstances vary.  Your trust arrangement may be relatively secure.  Other arrangements may not be so secure because for the most part, if you build or install something permanently on another piece of real property (meaning land), whatever you built or installed becomes attached to the real property and belongs 100% to the person who owns the land, no matter who paid for the build or installation.  Caution is needed based on individual circumstances.