Solar Panels as a business

[thetaxman2200]

Good Evening, I hope every one is staying safe! My questions is this- I had a new client reach out to me due to their previous tax guy retired, we live in Florida and the previous tax guy was in Utah. Right after the client input solar panels this tax person reached out to them and bout their tax return. Looking at their 2018 return the tax person created a business for the solar panels which he started in 2016, these solar panels were put on their private home and nor have the tax clients every had a business. They have been depreciating the solar panels. I am not sure this is allowed! Has any body else seen this or am I missing something. Again can they have a business for solar panels on their own home and depreciate the solar panel? I look forward to hearing from you and thank you in advance.

[Burke]

I don't see how. A business is an entity which might involve buying/selling or manufacturing/selling solar panels to others. I would call this a sham, unless they can come up with some really good explanation. It might have been eligible for the Energy Credit in the year they were purchased and installed. Are they filing a Sched C? What is on Line A for type of business or service? Are they, or have they ever reported any income from this "business?" Are they deducting other expenses?

[Lion]

Do they have a solar panel farm over acres? Do they sell electricity? Most homeowners with panels on their roofs generate little excess electricity, and what excess they do generate just applies to their own electric bill. I don't see your client in business, but you have to ask them questions to understand.

[Burke]

If they are depreciating these panels, that would go on Form 4562 which would flow through to another schedule such as Sche C. Perhaps in 2016 they had an office-in-home for which a deduction was taken on Sche A and/or Form 2106, and these were listed in connection with that. Was he an employee who had employee business expenses then? All those expenses were eliminated for tax years after 2017.

[ATSMAN]

OP should tell us if the solar panels were depreciated under OIH.There would be a business use factor.

I suspect someone was incorrectly depreciating using 100% business use. In our area a state agency gives credits for small businesses to install solar panels on their roofs. It is installed on a business property.

[TaxGuyBill]

While it technically could be a "business" in some cases, I suspect the majority of cases don't qualify.

See this previous discussion about it:

https://forum.thetaxbook.com/forum/discussion-forums/main-forum-tax-discussion/300322-residential-solar-panels-treated-as-a-business-activity

[ATSMAN]

While it technically could be a "business" in some cases, I suspect the majority of cases don't qualify.

See this previous discussion about it:

https://forum.thetaxbook.com/forum/d...iness-activity

Good memory. I was also thinking that we had a discussion about this subject. Just could not remember if it was this website or another frequented by TaxPros!

Anytime I hear Solar Energy credits I get extra vigilant.

[Burke]

While it technically could be a "business" in some cases, I suspect the majority of cases don't qualify.
See this previous discussion about it:
https://forum.thetaxbook.com/forum/d...iness-activity

That thread contains some enlightening information. I, too, would like to see the PLR it mentions, but I agree with the others. If the excess energy is simply allowed as a credit against their personal electricity bill, then that is not a "business," nor would it ever generate a profit. There is no way they would ever get more back than they pay for. So the depreciation is the only thing generating a net tax deduction and that is just a position to avoid paying tax on other income. I don't think it would have a chance of standing up in Tax Court. In addition, IMO, it would constitute passive income, and any loss would just carry over each year due to at-risk rules. So what's the point if you don't get a tax deduction?