30 % Federal Tax Credit for installing Solar Panels?

Question

I recently read an article that there is a 30% federal tax credit for installing solar panels. Is this also for investment property? Does anyone out there know

Steve K. · Answer

Disclaimer: I'm not a tax professional and this is not official tax advice. Anyone considering claiming the federal investment tax credit (ITC) for solar should consult with a certified tax accountant/CPA. With that said, I have claimed the solar ITC myself on my personal homes and also I have been working in the solar industry in various roles for about 15 years. The ITC is a 30 percent tax credit for solar systems on residential (under Section 25D) and commercial (under Section 48) properties. My understanding is that the ITC applies to primary and vacation homes/secondary residences but not rental properties. I have had solar customers claim the ITC on second homes and vacation homes without any issues. However I have also had customers ask their CPA's if their rental properties would qualify. In every case the CPA said no, the ITC only applies to primary homes or vacation homes, not rentals. There is language in the tax code stating you have to live in the home for part of the year to claim the ITC for the solar electric system that serves that property. Owned or financed systems qualify for the tax credit. If you lease a system, the 3rd party owner (leasing company) gets the tax credit. I have worked with investors who own large portfolios of resi rentals and the best solution for them has been to lease the systems or use a power purchase agreement (PPA), so that a 3rd party can claim the ITC and pass those savings on to the owner, since they can't take the tax credit on rental property themselves. I have solar on my personal residence but not my rentals. I would like to put solar on my rentals but seeing as the tenants pay the electric bills and those properties don't qualify for the tax credit, I haven't done it yet (although I may sometime anyway, after all other critical Cap Ex projects are completed). Several of my properties are in areas where leasing isn't an option so that solution doesn't work for me like it did for my above mentioned customers.

This is from the DOE website https://www.energy.gov/savings/residential-renewab...:

"A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer."

This is from the IRS website, instructions for filling out form 5695. (https://www.irs.gov/pub/irs-pdf/i5695.pdf):

"You may be able to take the credits if you made energy saving improvements to your home located in the United States... ...A home is where you lived in 2017 and can include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home... ...Your main home is generally the home where you live most of the time. A temporary absence due to special circumstances, such as illness, education, business, military service, or vacation, won't change your main home."

If you own commercial properties as a business you may be able to claim the ITC under section 48, but it would be important to ensure that the properties are zoned commercial and have commercial meters (not residential) and in this case the tax credit would apply to the businesses taxes not your personal taxes.

Here is the step down schedule of the ITC:

30% for systems placed into service before 12/31/2019

26% 12/31/19-1/1/21

22% 12/31/20-1/1/22

0% after 1/1/22

more info: https://www.seia.org/initiatives/solar-investment-...

https://news.energysage.com/how-do-i-claim-the-sol...

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf