Solar credit and 5-year MACRS

Technical topics regarding tax preparation.
#1
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Client purchased a solar panel for their primary residence and brought in a sample forms from a entity called the Solar Tax Center. They claim the typical 26% solar tax credit. In additional there's also a Sch. C and a Form 4562 with zero income, but depreciation of 87% of the total cost of the solar panel over 5 years, interest expense and legal/professional fees. The reasoning behind the Sch C is that you need to report the Net Excess Generation of the solar panel as business income.

I tried to do research on this and have found nothing. This feels like a marketing scam on the part of the solar panel sellers. Has anyone encountered this?
 

#2
JAD  
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You can't claim the residential credit on business use property.
 

#3
MWPXYZ  
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Did they actually sell excess electricity back to the utility in 2020?
 

#4
DAJCPA  
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So are they saying that 87% of the solar panels are used for the excess generation business? If so then I think you can only take the 26% nonbusiness credit on the other 13%. I don't know anything about the business solar credit but are they taking it as well?
 

#5
JAD  
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It is an interesting concept. Why shouldn't we take a deduction against the income reported for excess generation? But there is an error in the theory. If 95% of the energy generated was used in the home, and 5% went back to the grid, then how could you justify depreciating 100% or 87% of the panels? And that assumes that you can get around the fact of claiming the 26% credit on the full cost of the panels as residential property.

Also, will the taxpayer generate so much energy that there is excess generation? If not, certainly there is no profit motive, and the depreciation, interest expense, and professional fees are not deductible.

I'm being a bit sarcastic here. If a client asked me to do this, I would say no way.
 

#6
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JAD, you mean they can either take one or the other but not both.

MWPXYZ, I don't know if they actually sold electricity. I don't think my client would know either.

I see now, they are not taking the residential energy credit and treating it solely as a business credit.
 

#7
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JAD, I said no way also. Until a second client sent me the same thing.
 

#8
EZTAX  
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At first I thought no way but- lets go down the road.

Figure out total power generated for year.

Figure out power used personally. This gets us to a personal use %.

Apply this percentage to the cost of the panels and take residential credit on it.

We will call the non-residential cost a business expense? So report value of electricity sold to the power grid as income?

This is giving me a headache. Back to no way. This is an after 5/17 discussion.
 

#9
MWPXYZ  
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"I don't know if they actually sold electricity. I don't think my client would know either."

I know CA is a different place, but I imagine there must be monthly utility statements around somewhere.

Around here a homeowner might get a credit on the utility bill in an occasional July; and the business percentage would therefore be negligible.

But, I hear it never rains in Southern California.
 

#10
keiser  
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The companies that offer this tax advice appear to be highly questionable or outright scams: https://www.bbb.org/us/ca/northridge/pr ... complaints
 

#11
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Are they really "selling" electricity? I thought you just get credits that decrease the price of electricity in winter months.
 

#12
mariaku  
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They need to show a profit motive to enter into this activity, active business status (certain hours/yr requirement), and business plan. Otherwise, there is no business and no Schedule C applies.
 


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