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Question:

Solar panel, Home office and Tax write off?

I had installed over the summer a solar panel system on my house. Hers some infofor you: I live in MOThe system cost 25K (Rounded numbers)The Rebate from the utility company was about 0KThe expected tax rebate will be about 5KI have a home office from which I work and is 5% of my homes sq footage. My question is though I am getting a basic tax rebate, should I be able to claim part of this off as an expense for my home office?It seams logical since I used to deduct part of my electric bill and I there for should be able to write off part of this. I am, after all using electricity and getting a bill from the utility that is higher than it would be if I didn't have the office2. If so which amount should it be? The full 25K or something after the rebates.

Answer:

You would have to depreciate the office portion over a very long time frame in years. Contact a qualified tax professional as home office deductions set off all sorts of red flags.
Home Office Write Off
5% of the Net Cost (After Rebates) Depreciated over 27.5 years. EDIT: Oops ....39 years. I was actually debated that in my head before I posted.
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The solar panels are a capital improvement. You can deduct 5% of the depreciable portion of the property as part of the home office deduction. You'd have to depreciate the solar on the same 39 year straight line schedule as the house itself. (The land value is never depreciated so you'll have to break that out separately.) Since this is business use of real estate, the depreciation is over 39 years, not the 27.5 years for residential rental real estate. That crunches out to a whopping $38 deduction per year for the depreciation on the solar panels. ($0,000 x .5) / 39 = $38.46 which rounds down to $38. If you're in a 25% tax bracket, that will save you a whopping $0 in taxes. Keep in mind that when you sell the home, the depreciation allowed or allowable will be subject to recapture. That is taxable income subject to a maximum tax rate of 28% even if you can exclude the gain on the sale under Section 2. For that reason you might wish to consider the safe harbor deduction new for tax year 203. You may deduct a flat $5 per square foot up to 300 square feet for a maximum deduction of $,500. That won't trigger the depreciation recapture (for the years that you use it, you can switch off year for year if you wish) and may reduce the likelihood of an audit as well.

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