Claiming Solar Energy Credit with Home Office

[LindaWC]

I have maintained a home office for several years, and the home office is 25% of the total residence space.  In 2024, I have installed a solar energy system.  Since my home office is more than 20% of the total residence space, I believe that (i) I can only claim a solar energy tax credit for 75% of the qualifying costs (on Form 5695), and (ii) I then add the solar system as a depreciable asset for business purposes (with a reported cost equal to the total qualifying costs, less the claimed credit amount).   Can someone out there confirm whether this is correct?  Thank you.

[Opus 17]

Correct, you can only apply 75% of the cost for the credit.

You list the entire solar system as an asset for your home (a home improvement), using as your basis, the cost minus any federal, state or local credits and rebates.  Then you depreciate the solar system like you would depreciate any other improvement that affects the whole house (i.e. 25%), as you would if you replaced the HVAC system or similar whole house improvement.  And you recapture the depreciation when you sell the house. 

[LindaWC]

Thanks - I have a follow-up question which you may (or may not) be able to answer.  I understand that solar equipment is a 5-year class asset and eligible for MACRS depreciation.  So for the Asset Entry, I believe I need to select "other" for the asset class drop-down menu, and then hand-enter MACRS depreciation. 5-year depreciation life,  and 200% depreciation in lines 45-47 of the Asset Entry worksheet.  Correct? 

[Opus 17]

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@LindaWC wrote:

Thanks - I have a follow-up question which you may (or may not) be able to answer.  I understand that solar equipment is a 5-year class asset and eligible for MACRS depreciation.  So for the Asset Entry, I believe I need to select "other" for the asset class drop-down menu, and then hand-enter MACRS depreciation. 5-year depreciation life,  and 200% depreciation in lines 45-47 of the Asset Entry worksheet.  Correct? 

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That goes beyond me.  I don;t know if solar equipment on a residence has the same recovery period as business property (if you were in business of selling electricity).

@AmeliesUncle 

@tagteam 

@rjs 

[AmeliesUncle]

The 25% business portion can qualify for the business credit on Form 3468.  But it is more complicated than the personal/residential credit.

Yes, it is five years.  I remember the categories, but there probably is one that gives you five years.  If you can't find it, yes, you can do the "other" and select 5 years, 200%DB.  However, HALF of the business credit will reduce the Basis, so you'll need to partially reduce the Basis for depreciation.

[AmeliesUncle]

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@Opus 17 wrote:

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@tagteam 

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Is Tagteam still around?  A week or two ago it looked at all of his prior posts went "blank" (seemed to be erased; and I haven't seen him around lately).  Any idea?

[LindaWC]

Thank you for confirming that I use the 5-year life for depreciation, as well as the business tax credit.  I went thru the Asset Entry options, and "other" was the best option in the drop-down menu.  ("Office furniture" also gave me a five-year depreciation schedule, but I wasn't happy using that as the descriptor, for obvious reasons).  I'll do a spreadsheet in advance to track the interplay between the residential energy tax credit, business tax credit and depreciation to make sure that everything tracks.  Thanks for your help.