Solar Tax credit after transfer of loan and sale of home

[sheehanaf]

Hi,

My husband and I purchased and installed a solar system on our current home last year (2023).  The purchase was made via a solar loan which is transferrable to the new owners.  I filed Form 5695 Residential Energy Credit with our 2023 taxes and have a "credit carryforward" to 2024 and possibly beyond.  We are now in the process of selling our current home and will be transferring the loan with full warranty to the new owners.  

Note:  The additional payments we have been making, as per the loan agreement, are the exact amount of the solar tax credit due.  So we will have basically paid the solar tax credit up front when we sell the home which then keeps the monthly payments fixed for the new owners for the life of the loan.  

We basically would have already received the full credit if we had had enough taxes due in 2023, so I am thinking we just continue to file and receive the credit carryovers?  Based on my note above, we are just recouping what seems to be the solar tax credit paid in the additional payments allowing the loan to now remain fixed.  Or,  are we only entitled to a percentage of the credit since the loan is being transferred? 

Very much appreciate any clarity you can provide us with.

[Opus 17]

Your tax situation is completely separate from any contract you have with the solar company.  Your credit is not affected by the fact that you are selling the house before paying for the system in full.  You will continue to receive the carry forward credit on your tax return according to the normal calculations and rules for the credit.   For example, suppose the cost of the system was $30,000. You should have claimed the full price of the system when it was installed, even though you were getting a loan.  The credit would have been $10,000. (Shown on line 13 of form 5695).  If, because of your other tax situation, you only got $8000 of the credit in 2023, you would carry forward $2000 which will probably be paid to you in 2024. (see line 16 of your form 5695). 

What obligations you have to the solar panel installer is between you and them, and doesn't change your tax return. 

Of course, you will be completely unable to sell the home unless one of 2 things happens:

a. you pay off the solar loan in full so the new owners can have a clean title, or

b. the new owners agree to assume the loan and the solar company agrees to allow the loan to be assumed.

[sheehanaf]

Thank you so much for this info.  It was as we thought, but wanted to be sure.  We are hoping to transfer the loan to the new owners, but if not, we will have to pay it off.

[panhandlecleanign]

what if you are the buyers of a home in 2024 and you assumed the solar loan not lease.  How do you claim that on taxes?

[DoninGA]

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@panhandlecleanign wrote:

what if you are the buyers of a home in 2024 and you assumed the solar loan not lease.  How do you claim that on taxes?

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You cannot claim the credit or loan payments on your tax return.  You are not the original owners of the solar system installed on the home.

[Vanessa A]

If you are the buyer and assuming the solar loan of the original buyer of the solar system, you are not eligible for the credit.  To claim the credit, you must be the original owner of the product, it cannot be used.

The Residential Energy Credit is also a non-refundable credit, however this one can be carried forward to future tax years until this credit goes away which is currently set to happen in 2034

This credit is worth up to 30% of the cost of the equipment, with no maximum limit.  The items that fall into this category are as follows:

• Geothermal Heat Pumps
• Small Wind Turbines
• Solar Energy Systems
• Fuel Cells
• Battery Storage Technology

To qualify

• The product must be installed on a home you live in, whether it is your first or second home
• You must have purchased the product new.  It cannot be used.

In order to claim the credit you must

• Live in the home you installed the item in
• You can not rent this home to others if you do not also live in the home
• it must be your main home
• It must be in the United States
• You cannot use the property solely for business. 
  • If you use the home partially for business but less than 20% you can take the full credit.
  • If you use the home more than 20% but less than 100% for business, you can take a prorated credit

[Opus 17]

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@panhandlecleanign wrote:

what if you are the buyers of a home in 2024 and you assumed the solar loan not lease.  How do you claim that on taxes?

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Sorry, the entire credit goes to the original purchaser of the solar system in the year they installed it, regardless of whether they paid in full or took a loan.  Subsequent buyers of the property can claim nothing.