Rental Real Estate Energy Efficient Upgrades Eligible for Tax Credit on IRS Form 3800 - John R. Dundon II, Enrolled Agent
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Rental Real Estate Energy Efficient Upgrades Eligible for Tax Credit on IRS Form 3800

Rental Real Estate Energy Efficient Upgrades Eligible for Tax Credit on IRS Form 3800

If you own an office building that rents to various tenants and would like to install solar panels on the roof to generate electricity, and a geothermal heating and cooling system you may be eligible for a tax credit for these items. IRC §48 allows you to claim a tax credit equal to 30% of the basis of the solar panels placed in service during the year, and 10% for the geothermal heating and cooling system.  Property eligible for the credit includes amortize-able or depreciable property that meets certain government standards and is constructed, reconstructed, or erected by the taxpayer (or acquired by the taxpayer if original use begins with the taxpayer) that:

Uses solar energy to generate electricity, heat or cool a structure, or provide solar process heat;

Uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight (for periods ending before 2017);

Is used to produce, distribute or use energy derived from a geothermal deposit as defined by IRC Sec. 613(e)(2);

Is qualified fuel cell or microturbine property;

Is combined heat and power system property;

Is qualified small wind energy property; or

Uses the ground or ground water as a thermal energy source to heat or cool a structure (for periods ending before 2017).

The energy percentage does not apply to the portion of the basis of any property that is attributable to qualified rehabilitation expenditures. The basis of the property on which the credit is claimed must be reduced by 50% of the energy credit, even if the full amount is not used in the current year [IRC Sec. 50(c)].

The energy credit can be used to offset AMT liability without limitation and is subject to a five-year recapture rule if the property is disposed of. The amount recaptured is reduced 20% for each year the qualifying property is held [IRC Sec. 50(a)(1)].

This credit is claimed using Form 3468, Investment Credit, and becomes part of the taxpayer’s Section 38 general business credit (GBC). If there is a GBC in addition to the energy credit, the energy credit is carried to Form 3800, General Business Credit