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Steph-B-
Returning Member

Solar Tax Credit For Multiple Borrowers

Hello all!

 

I understand that the solar credit can be split between two people if the home has multiple borrowers (i.e., mom and son-in-law).

However, I can't find whether one party can claim both portions of the credits (if the other party is okay with this) when they file their taxes, or are if they are only restricted to their half of the full credit.

 

The IRS publication doesn't go into multiple homeowners scenarios. 

 

Thank you!

 

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12 Replies

Solar Tax Credit For Multiple Borrowers

I think you misunderstand, you never get a double credit.  You only get a credit for what you pay for.  Suppose the solar system cost $10,000.  If both owners paid half the cost, then the two owners can each claim a 30% credit of $5000, equals $1500.  If one owner paid for the entire system, that person claims a credit for 30% of $10,000 = $3000 and the other owner claims no credit.   The maximum possible credit for a $10,000 system is $3000, the only question is who paid for the system and gets the credit.  The credit will never be $6000.  

 

So with two owners, if you can reasonably say that one owner paid for the entire system, then that owner claims the credit. 

Steph-B-
Returning Member

Solar Tax Credit For Multiple Borrowers

Hi Opus 17, 

 

That is the answer I was looking for! 

 

In this scenario, the solar company requests that the mom's name has to be on the purchase agreement because she is the primary homeowner (the son is not on the deed), but the son-in-law will pay for the full solar expenses thus owning the solar under his name. He will end up claiming the 30% then.

 

Thank you for your help!

 

Solar Tax Credit For Multiple Borrowers

@Steph-B- - please review  the instructions for the solar credit (link below) on page 1.   It appears the son-in-law must live in the home to be eligible for the credit. 

 

Who Can Take the Credits
You may be able to take the credits if you made energy saving improvements to your home located in the United States in
2021. 


Home. A home is where you lived in 2021 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

 

I caveot this answer in that Biden approved the Inflation Reduction Act today which has impacts on the solar credit.  I do not know if this new act changes who can claim the solar credit. 

 

https://www.irs.gov/pub/irs-pdf/i5695.pdf

 

 

 

Solar Tax Credit For Multiple Borrowers

@NCperson is correct.  To claim the credit, the taxpayer must use the home as a residence.  

 

Interestingly, the taxpayer does not have to own the home, or even be a borrower on the mortgage to claim the credit.  But they must use the home as a residence (as well as pay for the system, of course).  It does not have to be their main residence or their only residence, but it must be "a" residence of the taxpayer who claims the credit.

 

This requirement is not changed or updated by the Inflation Reduction Act. 

Steph-B-
Returning Member

Solar Tax Credit For Multiple Borrowers

@NCperson @Opus 17  Sorry forgot to mention that the son-in-law does live in the same household, so he fulfills the residence qualification. 

Thank you for the reminder.

Solar Tax Credit For Multiple Borrowers

How do they define someone who “Pays” for the system to qualify for the tax credit for solar? In other words would I have to be on the agreements for the solar loan? Or just because I will be contributing to pay for it I will qualify?

Solar Tax Credit For Multiple Borrowers


@Benwestbrook09 wrote:

How do they define someone who “Pays” for the system to qualify for the tax credit for solar? In other words would I have to be on the agreements for the solar loan? Or just because I will be contributing to pay for it I will qualify?


The tax code is not specific.  In this case, if audited, you need proof that would satisfy the auditor.  At a minimum, I suggest you write a separate check for your share of the cost payable directly to the installer.  Even better, get a split contract.  If you contribute funds to the co-owner's generic bank account, an auditor could look at that and say there was no proof that the funds were used to pay for the solar system instead of being a gift or paying the other person's other living expenses. 

Solar Tax Credit For Multiple Borrowers

Hi,

 

I get there is, in my mind, some ambiguity in the instructions for 5695 around Multiple Owners/residents of a home when it comes to installing solar and getting the credit. Historically IRS would point towards ownership and payments for deductibility of certain expenses and credits - you needed to own and then pay an amount towards that ownership percentage. If I owned 50% then I would be entitled to deduct up to 50% provided I paid it.

 

The solar credit seems pretty  loose in that it is not clear you need to own property except for reference to adjusting basis of home for credit later - so I think ownership is required.

 

My concern is, while I can see why you suggest that even one 50% owner in a residence where to live and own as tenants in common, could pay for solar and then get the full 30% credit on a property owned only 50%, my concern is I don't see that in black and white in IRS instructions or code - I may be missing it and I just don't want to mis-step here.

 

Let me know your thoughts on this as the safe answer seems to be to ensure that all tenants in common owners on a deed each contribute to solar purchase in alignment with their share of ownership. But your suggested approach allowing any one resident owner to purchase solar and get full credit is simpler if supported by tax law which based on your conviction, I suspect it is. Please help me understand this more,

 

Thanks!

Solar Tax Credit For Multiple Borrowers


@ronaldlar1 wrote:

Hi,

 

I get there is, in my mind, some ambiguity in the instructions for 5695 around Multiple Owners/residents of a home when it comes to installing solar and getting the credit. Historically IRS would point towards ownership and payments for deductibility of certain expenses and credits - you needed to own and then pay an amount towards that ownership percentage. If I owned 50% then I would be entitled to deduct up to 50% provided I paid it.

 

The solar credit seems pretty  loose in that it is not clear you need to own property except for reference to adjusting basis of home for credit later - so I think ownership is required.

 

My concern is, while I can see why you suggest that even one 50% owner in a residence where to live and own as tenants in common, could pay for solar and then get the full 30% credit on a property owned only 50%, my concern is I don't see that in black and white in IRS instructions or code - I may be missing it and I just don't want to mis-step here.

 

Let me know your thoughts on this as the safe answer seems to be to ensure that all tenants in common owners on a deed each contribute to solar purchase in alignment with their share of ownership. But your suggested approach allowing any one resident owner to purchase solar and get full credit is simpler if supported by tax law which based on your conviction, I suspect it is. Please help me understand this more,

 

Thanks!


Ownership is not required.  To qualify for the solar panel credit you must pay for a solar system on a home you use as a residence.  It does not even have to be your main residence, and you do not have to own it.  (Other parts of the energy efficiency credits have different rules.)  Regardless of the instructions, that's the law.  

 

Personally, I think it would be beyond foolish to pay for a solar system to be installed on a home I don't own, since I immediately lose all property rights I might have in the solar system as soon as it is permanently attached to someone else's real property.  But the law allows it.  (One common scenario is a child helping to pay for a system on a parent's home or vice versa.)

 

You claim the credit on what you actually pay, so there's no issue of over-claiming.  A $10,000 system will get someone a $3000 credit.  If 5 people split the cost at $2000 each, they would each get $600 for a total credit of $3000, same as if one person paid for the whole thing.  

Solar Tax Credit For Multiple Borrowers

Thanks for your inputs here much appreciated. I extrapolated that if I didn't have home ownership I wouldn't have a basis to adjust as my explained in IRS instructions.

 

But I'm okay with ownership point and just to be clear, in your mind if I were a resident in a home that just so happen to be owned by three people including me (I get ownership doesn't matter), that I could pay in full for a solar system and be entitled to full credit?

 

Also, another question, in your mind, can I take a solar geothermal hot water heater credit in 2022 at 30% and then in 2023 install solar panels and system and get the solar credit for those costs? I ask as the form aggregates all 30% eligible items and I see multiple references saying you can only take the solar credit once. I want to ensure that they are not essentially saying whatever you spend on aggregate in a given year you cannot get credit in any subsequent spending for other solar items (on different lines under 30%category). I get if I install a solar system this year I can't claim it again next year bor no necessarily additions thereof ). Simply stated if installed qualifying geo thermal hot water heater in 2022 and take the credit and in 2023 I installed on solar panels can I take solar credit for panels in 2023?

 

Finally, an unrelated question - since you have good understanding on need for ownership etc - Again my example, I am one third owner in house - Can I pay for and then deduct 100% of the real estate taxes (subject to limit) and same with Mortgage interest or am I limited to max of one third deduction since I am really paying someone else's obligations for their balance. Again to me tax publication and instructions not as clear - old days you could deduct what you paid up to what you were liable for. Today, suspect this may be simpler - could you please share your thoughts on this as well.  Thanks again for sharing your thoughts on all of this.

 

Solar Tax Credit For Multiple Borrowers

1. Basis is a different prospect, if you mentioned that before, I didn't see it.  It's not clear to me if the owner gets a basis adjustment if a non-owner pays for the improvement (it could be any improvement).  I tend to think the owner does not get a basis adjustment, but I leave room to be open to be persuaded otherwise.

https://www.irs.gov/publications/p551

 

In the case of joint property, let's say a home with cost basis $100,000 and 3 equal co-owners and 1 owner pays fully for a $10K solar system, I think the first owner's basis is $43,333 and the other 2 owners retain their $33,333 basis.  But I'm not confident without doing more research.  (And the basis is reduced by any credits, of course.)

 

2. Yes, if you are a resident in a home and you fully pay for the system, you are the only person who can claim the credit and you can claim it all. 

 

3. Each piece of property (hot water heater, solar panel, etc.) is claimed as of the date it is placed in service (installed and turned on), regardless of when the contract is signed or the property is paid for, using the tax laws in place at the time.   You can't claim the same property more than once, but you could claim solar in 2 different years if, for example, you installed solar panels on your house in 2022 and then you installed more panels on your detached garage in 2023, both would qualify on the corresponding year's tax return.   So if you install different qualifying items in different years, you can claim a credit on each return for that year's qualifying property. 

 

However, I don't see any qualification for a geothermal heat pump water heater.  Section 25C allows a credit for a natural gas or electric heat pump water heater.  Section 25D allows a credit for qualified geothermal heat pump property, but the term “qualified geothermal heat pump property” means "any equipment which— (i) uses the ground or ground water as a thermal energy source to heat the dwelling unit..."

 

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

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

 

If I am reading that correctly, if by hot water heater you mean it is used for hydronic heating (hot water circulating in pipes to warm the house, or cool water to cool the house) then you qualify, but if you mean it is used to heat potable water for drinking, cooking, washing and bathing, then it does not qualify because it does not heat or cool the dwelling unit

 

4. To deduct mortgage interest you must be a debtor on the mortgage, and be an owner of the property, and actually pay the mortgage.  To deduct property taxes, you must be an owner of the property, and actually pay the taxes.  You can deduct what you actually pay.

 

(For a technical explanation, as long as you are one of the borrowers on the mortgage, and one of the property owners, you have joint and several liability for the taxes and interest, meaning the taxes and interest are equally due from all owners, and the lender or county can collect from whomever is most convenient, if you all don't pay.  You're not paying "someone else's" bills, they are 100% everyone's bills.)

Solar Tax Credit For Multiple Borrowers

Thanks again for very clear definitive information and links to regs much appreciated. My apologies for not being clear on water heater yes it hydronic heating system.

 

Your comments on ownership and related deductions are clear as well - Much appreciate your sharing your knowledge and down to earth explanations to the community out here!

 

Thanks again!!

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