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Solar Credit/Rental Property

January 18, 2017 • Dan Christensen Jr • Log In to Post Comments

I would like to know if the credit for solar on a rental property is subject to the passive loss rules?  Meaning, you can only utlilize the credit on the tax from the property's net rental income, if any.  Thus, the unused credit would be carried forward in loss years.   I have looked high and low and haven't seen this addressed.


Comments

The residential solar credit is only allowed on property that is used by the taxpayer. Property must meet the definition of Sec 121. See form 5695.

Dan,

Yes, the credit is subject to the passive loss rules.  The reason is that when dealing with a rental property, the credit is the business solar credit, which is part of the investment credit reported on Form 3468, which then flows up to Form 3800, General Business Credits, before flowing to Form 1040 for solar property installed on a Schedule E rental property.

General business credits are subject to the passive loss rules.  See Form 3800 for additional guidance.

While Steve Honeyman's analysis is correct, the residential solar credit he references in his post is only available for property that is personal use property to the taxpayer, such as a primary residence or vacation home.  So, for your rental property, you should not be calculating the credit on Form 5695.

For additional solar credit guidance, we have a one-hour on-demand seminar that we put together last month that details many of the residential and business solar credit issues, including basis adjustments and recapture issues that you should be aware of.

Thank you both for your time and your answers.  I have read the intructions for Form 3800 extensively and that was what I thought, but others didn't agree with that assessment.

I think the reason peole might not agree is because the solar credit language, on its own, seems to indicate that the credits operate independently on their own.  It's only when you put the business credits in context as part of the IRC section 38 General Business Credits do you get the full picture.

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