Solar tax credit for rental property - "Residential" or "Non-residential credit"

[Oliflyer]

Hello,

I installed solar panel in our second home that we also rent short term with Airbnb. I am struggling to find the best way to claim the energy credit. There seem to be 2 options, option 1 does not allow me to claim the full credit, I found a 2nd option in TT forum, but it is not completely clear to me if it really applies to my situation:

1- "Credit for Residential Solar Energy": Because I also use my rental property for personal use, I can claim the "residential solar credit", BUT the amount will be prorated to the time we occupied the house during 2021 - TT Premier fills form 5695 but does not account for the prorated part, and gives me full credit (which is wrong).
2- I have seen mentions of another option, the "Non residential energy property credit - IRC Section 48 - (Form 3468)". TT Premier is not helpful at all here, I cannot find form 3468 in TT Premier.
After a lot of reading, I still cannot figure out if IRC Section 48:
a- Can be claimed by a "non-business" entity (I own the house, it is not owned by a LLC, S-corp...)
b- Can be claimed even if the property is not rented 100% of the time, we partially use it as a 2nd home

I hope this rings a bell and someone will be able to provide some guidance.

Thank you,

Chris

[ColeenD3]

The second option is not available to you. Even rented, it is still residential real estate.

You can't claim the residential solar credit for installing solar power at rental properties you own. But you can claim it if you also live in the house for part of the year and use it as a rental when you're away.

• You'll have to reduce the credit for a vacation home, rental or otherwise, to reflect the time you're not there.
• If you live there for three months a year, for instance, you can only claim 25% of the credit. If the system cost $10,000, the 26% credit would be $2,600, and you could claim 25% of that, or $650.
  • $10,000 system cost x 0.26 (26% credit) = $2,600 credit amount
  • $2,600 credit amount x 0.25 (25% of the year) = $650 credit amount

Solar vacation home

[Oliflyer]

Thank you for your reply.

I got a call back from a TT expert who told that I can use the option 2 "Non residential energy property credit - IRC Section 48". He also told me that the support for form 3468 in TT would release on March 24.

My solar installer also said that customers used that option for their rental properties, I wish I could speak with these people to get the details.

So which advice should I follow now? 🙂

C

[DaveF1006]

Please read this Turbo Tax source for a complete analysis on reporting a 3468. In the article, it states that "the credits on Form 3468 are generally claimed by businesses. Corporations use them to reduce their corporate income taxes. Sole proprietors use them to reduce their personal income taxes. Taxpayers who have an ownership stake in so-called pass-through entities, such as partnerships and Subchapter S corporations, share these credits earned by the business with the other owners of the business". 

Form 3468 is filled out to claim an investment tax credit for a business and not for individuals, unless they have an ownership stake in the pass-through entities.

@Oliflyer

[Oliflyer]

Thank you for this "interesting" reading.

But I am totally confused now, I am no expert, which is why I called TT, explained my situation, and the TT expert told me after some research that I could claim it as a "Non-residential credit"... And that TT would support this after March 24, I still don't find it! 🙂

Chris

[ColeenD3]

It is not available for a vacation home.

Energy Property. Section 48(a)(3) provides that the term “energy property” means any property (A) listed in § 48(a)(3)(A), (B) the construction, reconstruction, or erection of which is completed by the taxpayer, or which is acquired by the taxpayer if the original use of such property commences with the taxpayer, (C) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and (D) which meets the performance and quality standards (if any) which have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy), and are in effect at the time of the acquisition of the property. 

Investment Credit Property

Investment credit property is any depreciable or amortizable property that qualifies for the rehabilitation credit, energy credit, qualifying advanced coal project credit, qualifying gasification project credit, or qualifying advanced energy project credit.

You can't claim a credit for property that is:

Used mainly outside the United States (except for property described in section 168(g)(4));

Used by a governmental unit or foreign person or entity (except for a qualified rehabilitated building leased to that unit, person, or entity; and property used under a lease with a term of less than 6 months);

Used by a tax-exempt organization (other than a section 521 farmers' cooperative) unless the property is used mainly in an unrelated trade or business or is a qualified rehabilitated building leased by the organization;

Used for lodging or in the furnishing of lodging (see section 50(b)(2) for exceptions); or

Certain MACRS business property to the extent it has been expensed under section 179.

Section_50b2 

[Oliflyer]

Hi ColeenD3,

You may have missed it in my initial post, this is not just a vacation home, it is rented most of the time (short term rental) which makes me eligible to the "residential credit" but prorated.

Since it is rental I will claim depreciation for the solar system, and that check the box that you highlighted in your post: "Investment credit property is any depreciable or amortizable property..."

[Dax345]

Did you ever get an answer on this?  I own a STR in Arizona and would like to get solar.  My accountant said I only qualify for option #1 and can write off the 10% i am at the house.  

would like to use option #2.   Does not make sense without the deduction.  

[Opus 17]

@Dax345 

I don’t know anything about section 48, but your accountant is correct about section 25D. The 30% credit for solar power is available to any dwelling unit that you use as a residence, it does not have to be your main residence. However, if it is also used for business, you can only claim the portion of the credit that the property is used for personal use. If the property is only used for personal use 10% of the time, then you would apply 10% of the cost toward the credit and get 30% of the 10% back on your tax return. 

[Dax345]

Yes I need to figure out section 48.   The main difference between an Airbnb and a standard long term rental is that I pay the electricity for the guests, standard landlords pass that onto the tenant so it does not matter to them.  

I pay hotel and lodging taxes to state of Arizona.   These are extra taxes that a normal LTR landlord would not pay so I think this should make me commercial and it could apply? 

[AmeliesUncle]

If the home is used 10% for personal and 90% for rental, then you claim 10%  on Form 5695 and 90% on Form 3468.

[Oliflyer]

Hello,

I had several calls with TTax experts, and finally found someone who told seemed to understand how to do it. So I did what "Ameliesuncle" is suggesting a few msgs below, I used option #1 for the time I used the property and option #2 when it was rented; this way I could claim the entire credit. I filed in April, and got my refund. Fingers crossed...   

[hqueue]

@Oliflyer or others - were you ever able to learn more about this one? I will be purchasing a new construction rental property (100% time rented out) in CA - where new builds are all required to be with solar now. Trying to figure out whether any solar credit will be eligible as part of Form 3468. Thank you!

[Oliflyer]

Hello Hqueue,

I would ping the TTax people, it took me a long time and several calls to figure out how to proceed. As I said earlier in the thread, I combined both methods to claim the solar credit, but in your case since it will be 100% rented, you should be able to use the "Non residential energy property credit - IRC Section 48 - (Form 3468)" option to claim it. It is what I would do, but again, I am no tax expert. 

[ShirlynW]

1. No. You do not qualify for the "Credit for Residential Solar Energy". The credit is for your main home or home. The IRS defines this type of rental property as short-term or a vacation rental if rented for less than ‌two weeks‌ within a calendar year. A vacation home is considered a rental if it is rented out at any time during the course of the year.

      2, No, "Nonresidential energy property credit - IRC Section 48 are available only for certain improvements made to second homes, and the credits are never available when the 

        improvements are made to homes not used as a residence by the taxpayer.

I