Solar Tax Credit for owner occupied multi-family home

[redfordw]

My sister owns a duplex.  Her family lives in the larger, upstairs unit (73%) and she rents the downstairs unit (27%) to a couple. In 2024 she installed solar on her house.  Both units are on one single meter and share electricity.  The downstairs tenants have utilities built into their monthly rent check. How does she properly claim the solar tax credit for her home (which includes the rental unit downstairs (Sch E))?

[AmyC]

The business use limits the credit allowed despite the utilities being included. Residential Clean Energy Credit | Internal Revenue Service addresses your issue. It states:

If you use your home partly for business, the maximum available credit for eligible clean energy expenses is as follows:

• Business use up to 20%: full credit
• Business use more than 20%: credit based on share of expenses allocable to nonbusiness use

Find more on who can claim the credit.

[redfordw]

Yes, I did read this.  I wasn't sure if "conducting a business" and a residential rental property are considered the same thing.  Obviously she wants the full 30%.  If this limits her tax credit on Form 5695, can she pick up the rental portion of the solar tax credit on a different form?

[DawnC]

Since the business portion is more than 20 percent (27% per your calculations),  the prorated amount for the personal portion of the credit is claimed on Form 5695.   A renter that paid solar costs can claim the rental portion of the residential energy credit.  

• Form 3468 is used to claim investment tax credits for specific types of projects that property owners engage in on their property.
• Some of the credits that can be claimed using Form 3468 include the Qualifying Advanced Coal Project Credit, Qualifying Gasification Project Credit, Qualifying Advanced Energy Project Credit, Rehabilitation Credit, and Energy Credit.

Part III of the form is for claiming either the rehabilitation credit or the investment credit for energy properties:

• The rehabilitation credit is for work to restore, preserve or upgrade an older building or one that qualifies for historic status
• The energy investment credit is available for properties used for alternative energy; solar, wind or geothermal energy; shale oil production; recycling; certain kinds of natural gas production; and other technologies Congress chooses to designate.

A rental property reported on Schedule E generally does not qualify for the Investment Tax Credit.   You can get an investment credit for the following projects:

- Rehabilitation of a qualified building
- Energy credit energy project
- Qualifying advanced energy credit
- Qualifying advanced coal project
- Qualifying gasification project
- Qualifying advanced manufacturing  credit
- Qualifying clean electricity credit
 

See - Clean Energy Tax Incentives for Businesses

See U.S. Code § 48 - Energy credit