Can I Depreciate Solar Panels on a Primary Residential Property that I converted to a Rental?

Forum|Forum|6 years ago
April 15, 2020
3 replies
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I had solar panels installed on my primary residence in 2017 and took the tax credit to do so. It was my primary residence. In 2019 I moved and converted the property to a rental. Am I able to add the solar panels as an asset and depreciate them when calculating my deductions for the rental property?

mglauner

Yes, you can add the solar panels as a Rental Asset and depreciate them as a deduction.

Be sure to subtract the amount of the tax credit you received from the Cost when you set up the asset in the Rental Section.

Anonymous

Assuming it would be categorized as "rental real estate property? Which category should it be entered as?

Carl11_2

Employee

Yes, you can depreciate the solar panels. However, you must subtract whatever tax credit you received from the cost basis. Since the panels are "a physical part of" the structure now, they get classsified as residential rental real estate and depreciated over 27.5 years.

If the panels are placed "in service" on the same date the property itself is, then it's easier/simpler just to add your allowed cost to the cost of the structure - *NOT* the cost of the land.For example, if on the structure you have:

COST: $100,000

COST OF LAND: $30,000

Then after subtracting your tax credit from the cost of the solar panels lets say you have $10,000 to depreciate. Change your above values to:

COST: $110,000

COST OF LAND: $30,000

Now, the program "Knows" that $70,000 gets depreciated over the next 27.5 years.

If you want to enter the panels as a separate asset, that's fine too. There's pros and cons to both ways. I myself would enter them as a separate asset. That's because in the event of something such as a hurricane, more than likely the solar panels will be damaged before the structure is damaged, and it makes it simpler to handle the asset with the insurance payout and all that stuff.

As a side note, when you convert a personal use property such as your primary residence, to rental property, take special note that your standard homeowner's insurance policy *WILL* *NOT* cover you. You need to either convert that existing policy to a rental dwelling policy, or purchase a completely separate rental dwelling policy. Whichever you you, insist that the solar panels be included in that policy. Remember, if it's not in writing, then it *DID* *NOT* *OCCUR*. So y our agent can talk the talk all day long. What they say doesn't mean squat. Insist it be in writing and endorsed by the policy underwriter.

JayinIC

What about depreciating solar panels on a primary residence? Can that be depreciated? Most people live in state's with net metering, so in some months, they earn small amounts from their electric utility when the panels produce more than the residence needs. Would that allow for claiming depreciation for the panels? Thanks.

DoninGA

Employee

@JayinIC wrote:

What about depreciating solar panels on a primary residence? Can that be depreciated? Most people live in state's with net metering, so in some months, they earn small amounts from their electric utility when the panels produce more than the residence needs. Would that allow for claiming depreciation for the panels? Thanks.

Nothing on a personal residence, not used in a business or as a rental, can be depreciated.

vintinck

The only reason installing residential solar makes sense is because you can sell power back to the utility. Without this arrangement, you wouldn’t buy the panels. I don’t know the exact numbers but I bet 30-50% of the power produced is sold to the utility. Would this not be similar to buying a car and using it as an Uber 50% of the time to help make the car payments?

Carl11_2

Employee

The only reason installing residential solar makes sense is because you can sell power back to the utility.

That's not the only reason. People I know (about 10-12) that have installed solar on their residence have done so with the primary intent to reduce their electric bill. If they produce excess power and sell some back, then that makes it better. But they didn't install solar with their primary intent being to produce power and sell it back. Some months they do sell some back (typically the winter months here in FL which might be 3 months if you're lucky) and some months they just have a substantially lower bill (Typically the summer months).

vintinck

Sure, but you don't produce power at night, or when the sun is not out. So even if you are paying a 0$ on your electric bill and not getting any excess credit back you likely are using power from the grid (a night) and overproducing during the day to acquire credits to pay for night time usage. If you have a battery, you may be able to do this without being connected to the grid. Residential solar without battery storage really only makes sense with this relationship with the utility.