Depreciating solar panels on rental home

Forum|Forum|5 years ago
March 20, 2021
2 replies
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I'm not seeing any consistent info on depreciating solar panels on rental homes.

I've purchased panels for a rental. I've seen in some places they are a 5 year property, other places 27.5. Which is it, and what do I select in the TT Deluxe asset descriptions to end up with the correct type property? So far, I have not found anything helpful in IRS pubs, either.

Thank you for any direction on this!

Carl11_2

Employee

Based on what I read in IRS Publication 946, page 29 at https://www.irs.gov/pub/irs-pdf/p946.pdf it's 5 year property. But if it is "a physical part of" the structure, there's nothing wrong with classifying it as residential rental real estate and depreciating it over 27.5 years. I myself would prefer the 27.5 year route, since that keeps the depreciation I"m required to take each year, significantly lower.

Additionally, be aware that you do not qualify for the "home energy tax credit" on this, since those panels are not on your primary residence.

operafluteAuthor

Oh, silly me for looking for that info in Rental Income/Expenses pub. Thank you for leading me to that page/pub!
I think there is the Investment Credit to be had, still, though? I've seen something about a 30% credit, and depreciating 85% after that (which is interesting math in itself)...

Carl11_2

Employee

I think there is the Investment Credit to be had

As I recall, there's some kind of "business" energy tax credit you may qualify for on rental property. I just want to make you aware that you do not qualify for the "home" energy credit, since the property is not your primary residence.

Bryant17

I'm not seeing any consistent info on depreciating solar panels on rental homes.

Thank you for any direction on this!

AnnetteB6

As discussed in the post above by Carl, there is an argument to be made for either 5-year or 27.5 year property. If the solar panel is installed as a permanent part of structure of the house, it really should be considered as 27.5 year property because it is a component of the house itself.

Taking a look at it from the homeowner's insurance side, insurance companies also consider solar panels to be a part of the house itself because they are considered a permanent attachment to your property.

If your particular solar panels are not installed on the roof of the house, but are completely separate from the house structure itself, then you have a better case for a shorter depreciation.

When you are working through the Schedule E Rental Income and Expenses section of your return, you would go to the Assets section to enter the solar panels for depreciation. Choose Rental Real Estate Property, then Residential Rental Real Estate. Next, you will be asked for the details of the cost. There will be a box for land. You can either leave it blank or enter zero for the cost of land. The end result will be the solar panels are depreciated over 27.5 years.

@Bryant17

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Carl11_2

Employee

One could also argue that even if the solar panels are physically separate from the house, they are still considered to be "a physical part of" the property. Therefore the entire system is classified as residential rental real estate and depreciated over 27.5 years.

The panels themselves would be the only thing separate from the house, while all the other equipment to interface with the home's existing commercial electrical system would be "a permanent part of" the structure. It's not like if you sell the house, you can unplug the system and take it with you. Installation of this equipment generally requires a certified electrician and it must pass an inspection before the power company will allow it to be connected and/or activated on any structure that is a part of their electrical grid.