Solar energy systems used in a trade or business may qualify for a tax credit of 30% of the cost. It can be added to business or rental property as long as it is part of a business or trade that is for-profit. Some enterprising individuals have even begun investing in solar energy systems that can be installed and rented to home and business owners, generating income and claiming the credit for each system installed and rented.
How does it work?
When adding solar panels to business property (must be used in a for-profit enterprise), you can claim a tax credit equal to 30% of the total costs of adding the system.
Since it is business use property, you will also get to claim depreciation expense over a 5-year period. When claiming the credit, the value for depreciation needs to be reduced by 15% (half of the percentage claimed for the credit), leaving 85% of the total cost which can be claimed through depreciation. The first year the system is placed in service, it is also eligible for the 50% bonus depreciation allowance.
One thing to note: If the property is disposed of within the 5-year period, the credit may be subject to a repayment varying from 20 to 100%, depending on how soon it is disposed of after it is placed in service.
How long is the credit good for?
Currently, the energy credit of 30% is good for solar energy property that begins construction by December 31, 2019 and must be placed in service by December, 31, 2024. If construction begins after December 31, 2019, the credit will be limited, going down to 10% by 2022.
If you have more questions about this credit and how it may apply to your specific situation, the professionals at Accurate Bookkeeping and Tax Service are ready to answer your questions.