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Depreciating solar panels on a split primary residence/part rental property

Level 1

Have client who lives in property 5 months a year and rents out to air B&B 7 months.  Installed solar panels in "2022", did not include the cost of the panels as a rental improvement but now wants to.  Received most of his credit on 2022's return but still has a small carryforward to this year. 

1. Can he deduct a portion of the $26000 installation?  If no, the rest is moot.

2.  Assume rental use is 60%.

3.  If deductible, "before 60% allocation", is the net asset value 87% of $26000?

4.  If deductible, what MACRS category does it fall in to and am I correct reading the rates are 20%, 32%, 19.2%, 11.5%, 11.5% and 5.8% respectively years 1 through 6.

5.  If deductible, I would suggest to him amended return for first year is in order.

Thank you for any and all input.


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1 Comment 1
Level 15

Yes, it can be depreciated as a rental asset as five year property.

How did he claim the credit?  Did he claim 40% on Form 5695 and 60% on Form 3468?

The personal credit reduces the Basis by the amount of the credit.

The business credit reduces the Basis by HALF of the amount of the credit.

But it gets a bit weird if (a) you reduce the entire Basis by those two things or (b) if you treat it as two separate items (rental item and personal item) and then just do the half credit Basis reduction on the rental portion.  While my first inclination would be to do the second method, it gets much more difficult if the rental percentage changes every year.