Rental and business property
The Commercial Solar Tax Credit for Rental and Business Property
Solar on a rental house or a business building may qualify for the Section 48E investment credit if it is placed in service by December 31, 2027. The credit follows ownership of the system. Confirm eligibility with a CPA before you count on it.
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Answer first
The short answer
Section 48E, the clean electricity investment credit, may apply to solar you own on rental or business property that can be depreciated. For a system under 1 megawatt AC, which covers every rental rooftop, the statute sets the Section 48E rate at 30 percent. Solar that starts construction now must be placed in service by December 31, 2027. A CPA confirms how it applies to your return.
- The credit belongs to the owner of the system, not to whoever pays the electric bill.
- Equipment sourcing matters: too much equipment cost from a prohibited foreign entity cancels the entire credit.
- The credit vests over five years, and selling or converting the property early triggers partial repayment.
- Whether you can use the full credit in the first year depends on the passive-activity rules for rental income.
Who this credit is for
Section 48E applies to qualified property with respect to which depreciation is allowable. A rental house, a small office, a shop, or a farm building can be depreciated. Your own residence cannot, which is why homeowners were on Section 25D, and that credit ended for systems installed after December 31, 2025.
The credit follows ownership of the system. Your tenant can pay the electric bill and the owner of the array still holds the credit. The statute's leasing restriction in 48E(i) refers to solar water heating and small wind property, not solar electric panels, but the wording is new and tax advisers watch it closely. Keep the array on the property owner's books and let your CPA confirm the structure.
The rate and the deadline
The Section 48E base rate is 6 percent. For a facility with a maximum net output under 1 megawatt AC, the statute sets the Section 48E rate at 30 percent, so a rental or small business rooftop reaches that rate without the prevailing-wage and apprenticeship requirements that large commercial projects must meet.
The deadline is in 48E(e)(4). Solar that is part of a qualifying facility and placed in service after December 31, 2027 gets no credit, and battery storage is excluded from that cutoff. Placed in service means installed and operating, so the permit, the inspection, and the utility's permission to operate all have to land before the end of 2027.
| Item | What the statute says |
|---|---|
| Who | The owner of depreciable property |
| Size | Under 1 megawatt AC for the higher rate |
| Solar deadline | Placed in service by December 31, 2027 |
| Battery storage | Excluded from the 2027 solar cutoff |
| Depreciation | 5-year property; half the credit reduces basis |
| Recapture | Partial repayment if the property stops qualifying within five years |
Sources: 26 U.S.C. 48E(a), (b), (e)(4); 26 U.S.C. 168(e)(3)(B)(viii); 26 U.S.C. 50(a) and (c)(3). Confirm with a CPA.
Where the equipment comes from can cancel the credit
For construction beginning after December 31, 2025, a system does not qualify at all if too much of its manufactured equipment cost comes from a prohibited foreign entity. That term covers companies organized in, headquartered in, or controlled by China, Russia, Iran, or North Korea, companies where such an entity holds a significant ownership or debt stake, and companies on specified federal restricted lists.
The minimum share of equipment cost that must come from other manufacturers is 40 percent for solar that begins construction in 2026 and 45 percent in 2027. On a rooftop, the equipment that counts is the modules, the inverters or microinverters, and the racking rails and fasteners. Installation labor does not count. This is not a ban on imports: equipment made in Vietnam, India, Mexico, Europe, or elsewhere is unaffected unless the manufacturer itself falls into one of those categories.
Ask any installer, us included, to show how the equipment on the quote meets the threshold, and keep that paperwork with your tax file for your CPA.
Depreciation, passive-activity limits, and recapture
A rental solar system is 5-year property for depreciation. Only half the credit reduces the depreciable basis, and bonus depreciation is generally available on the rest. Your CPA confirms how it applies to your return.
Generating the credit and using it are two different questions. Rental real estate is a passive activity, and a passive activity credit is limited to the tax on passive income, with the unused amount carried to the next year. Owners who actively participate in their rentals get a special allowance that phases out as adjusted gross income rises.
The credit vests over five years. If the system stops being investment credit property within the recapture period, part of the credit is repaid: all of it in the first year, then 80, 60, 40, and 20 percent, and nothing after five years. Selling the property, or moving into it as your own residence, before then triggers that repayment.
- Bonus credits exist for certain locations and for U.S.-made equipment; each address and bill of materials is checked on its own facts.
- No blanket eligibility promise: the owner, the property, and the tax return decide it.
The electrical side of a rental or business system
The 2027 deadline makes the electrical work the schedule risk. An older rental often has a panel that cannot accept a backfed solar breaker, and a small commercial building can need a service change before the utility will approve the interconnection. We are electricians first: the panel, the service, the permit, and the Dominion or NOVEC application are planned in the same proposal as the array, and a master electrician is on site for every solar project.
Straight answers
Questions
- Can I get a solar tax credit on my rental property?
- A system you own on rental property may qualify for the Section 48E credit if it is placed in service by December 31, 2027. The credit follows ownership of the system, not who pays the electric bill. Confirm eligibility with a CPA.
- What rate does Section 48E use for a rental rooftop?
- For a facility under 1 megawatt AC, the Section 48E rate is 30 percent, reached without the prevailing-wage and apprenticeship requirements that apply to large commercial projects. Your CPA confirms the amount you can use each year.
- Does my tenant or I get the credit?
- The owner of the system. Your tenant can pay the electric bill and the credit still belongs to the owner of the array.
- What happens if I sell the rental in three years?
- Part of the credit is recaptured. The repayment steps down each year over five years and ends after the fifth year.
- Does a battery on a rental have the same 2027 deadline?
- No. The 48E cutoff for solar placed in service after December 31, 2027 excludes energy storage. Confirm the battery's eligibility with your CPA.
Sources
- 26 U.S.C. 48E, Clean electricity investment credit (Office of the Law Revision Counsel)
- IRS, Clean Electricity Investment Credit
- 26 U.S.C. 50, Investment credit recapture and basis rules
- 26 U.S.C. 168, Accelerated cost recovery system
- 26 U.S.C. 469, Passive activity losses and credits limited
- IRS, Residential Clean Energy Credit
Next step
Plan a rental or business system to the 2027 deadline
Send the property address and a recent electric bill. The free quote covers the array, the panel and service work, and the permit and utility steps on one schedule, so your CPA has what they need.
Solar energy company
AJ Long Electric Solar
AJ Long Electric
7138 Little River Turnpike #305
Annandale, VA 22003
Serving Annandale, Fairfax County, and Northern Virginia.