Tax Smart Real Estate Investors Podcast

Episode 352: Solar Tax Credits for Real Estate Investors: What's Legit (And What's Not) With Nathan Sosa

Date: November 4, 2025
Host: Hall CPA
Guest: Nathan Sosa, Head of National Tax Department at Hall CPA

Episode Overview

This episode provides a comprehensive breakdown of solar tax credits for real estate investors. Host Tom welcomes Nathan Sosa, Hall CPA’s head of national tax, to clarify common misconceptions, explain the mechanics of solar tax credits, and address whether syndicated solar investments are truly effective in reducing tax liabilities. The episode covers practical examples, IRS rules, passive vs. active considerations, and risk factors when evaluating purported tax-saving strategies involving solar.

Key Discussion Points & Insights

1. What Are Solar Tax Credits?

• Definition & Purpose
  The federal government offers tax credits to incentivize solar energy installation, both for residential and business properties. The credit is equal to 30% of the installation cost—this is a credit, not a deduction, meaning it directly reduces tax liability dollar-for-dollar.

  • Quote:

    "If you put in $100,000 [of] solar panels... you will get a 30% tax credit on that for $30,000 at the end of the day, which is great."
    — Nathan Sosa (03:03)

• Difference Between Credits and Deductions
  Credits offset liability directly. Deductions only reduce taxable income.

• Bonus: Businesses can also depreciate the panels, often with bonus depreciation or Section 179.

2. Eligibility: Personal Residence vs. Rental/Business Properties

• Personal Residences

  • The 30% federal solar tax credit is available for personal residences, but only through December 31, 2025.
  • Installation must be completed by year-end to qualify.
  • Quote:

    "The construction needs to be done by the end of this year to ultimately qualify."
    — Nathan Sosa (08:56)

• Rental Properties

  • Still eligible for the credit, but the window closes December 31, 2027.
  • Applies to both short- and long-term rentals.
  • Offers both the 30% tax credit and depreciation benefits.
  • Special Note: Owners must reduce their depreciable basis by 50% of the tax credit received.

3. Qualifying and Material Participation

• Material Participation Rules

  • For rental/business properties, to use credits to offset active tax liability (e.g., W2 or active business income), the owner must materially participate per IRS rules.
  • Otherwise, credits/deductions are considered passive and only offset passive liability.
  • Quote:

    "You have to materially participate... Otherwise it'll get trapped as passive and will only offset passive tax, essentially."
    — Nathan Sosa (12:06)

• Personal Residences Exempt

  • Participation rules do not apply; credits offset your personal income tax liability.

4. Syndicated Solar Tax Credits & Common Myths

• How Syndicated Investments Work

  • Investors buy into pooled or direct-ownership deals with promises of depreciation and the 30% ITC (investment tax credit).
  • Structures may produce a K-1 (partnership/fund) or be direct via an LLC.

• Are They Legitimate?

  • Most are legitimate, provided panels are actually installed and generating revenue.
  • Caution: There have been scams. Always vet the sponsor.
  • Quote:

    "Most of the ones that I'm seeing are above board... But most of the ones that I'm seeing nowadays are very legitimate."
    — Nathan Sosa (16:45)

• Material Participation Realities

  • Many offerings instruct investors to attend meetings or review reports, but these “investor-level” activities usually do not satisfy IRS tests for material participation.

  • Court cases consistently strike down attempts to claim material participation based only on such activities.

  • Example: Cited court cases (Tubes v. Commissioner, Toland v. Commissioner, Preston v. Commissioner) where passive investors failed to meet the standards.

  • Quote:

    "There's no way that you're spending more time than everybody else for that hundred hours... The true operators of this."
    — Tom (20:43)

5. Passive vs. Non-Passive Treatment—The Core Issue

• Reality Check on Claims

  • Many promoters claim you can use these syndicated credits against active income, but the law makes this nearly impossible unless the investor is truly (and unusually) hands-on.
  • Most investors will find these are passive investments, with passive tax benefits only.

• Who Benefits Most?

  • Those with large amounts of passive income can benefit by reducing passive tax liability.
  • For those seeking to offset W2 or other active income, this is usually not a magic bullet.

• Quote:

  "It's a lot less attractive, right, when you start breaking all that stuff down..."
  — Nathan Sosa (29:22)

6. Practical Takeaways

• Personal Residence:
  • Act quickly—solar credits for personal residences expire after 2025.
• Rentals/Business:
  • Credits continue through 2027.
  • Material participation is required for offsetting active income.
• Syndicated Investments:
  • Only offsets passive tax liability for most investors.
  • Vet all sponsors carefully.
  • Great for high passive-income individuals.
• General Guidance:
  • Always run the ROI, including utility savings, not just tax benefits.
  • Consult a tax professional to ensure compliance and optimal structuring.

Memorable Quotes & Timestamps

• On Federal Incentives:

  “Just like with child tax credit... you just saved on your electricity bill, which is great. And then you also just got a tax credit on your personal residence, which is awesome.”
  — Nathan Sosa (04:44)

• On Deadlines:

  “The actual ability to do that on personal residences goes away December 31, 2025. So this is something you're thinking about... you gotta do it pretty soon.”
  — Nathan Sosa (05:24)

• On Syndication:

  “Most of the ones that I'm seeing are above board... But most of the ones that I'm seeing nowadays are very legitimate. You are actually purchasing solar panels...”
  — Nathan Sosa (16:45)

• On IRS Material Participation:

  “There’s no way that you’re spending more time than everybody else for that hundred hours... The true operators of this.”
  — Tom (20:43)

• On Suitability:

  “If you have a lot of income... you’re going to be able to utilize those credits without having to lift a finger... That’s going to make the most sense tax-wise because it requires the least effort from you.”
  — Nathan Sosa (30:59)

Important Timestamps

• [03:03] – Solar Tax Credits: Definition and Calculation
• [05:24] – Differences Between Personal and Rental Property Credits
• [09:17] – Rental Property Credit Timeline and Rules
• [12:06] – Material Participation & Passive vs. Non-Passive Use
• [13:11] – Structure of Syndicated Solar Investments
• [16:45] – Legitimacy of Syndicated Solar Investments
• [17:51] – Deep Dive: Material Participation and Investor Roles
• [20:43] – Court Cases and Why Investor Activities Seldom Qualify
• [27:44] – Summary of Credit Use on Residence/Rental/Syndicated Properties
• [29:22] – Use Cases: Who Should Consider Syndicated Credits?
• [31:30] – Closing Advice: ROI Focus and Action Items

Summary Table: Solar Credits Snapshots

| Scenario | Credit? | Key Requirements | Active/Passive Use | Deadline | |-----------------------------------|---------|------------------------------------------|------------------------------------|-------------------| | Personal Residence | 30% | Install by 12/31/2025 | Always offsets personal tax | 12/31/2025 | | Directly-Owned Rentals/Business | 30% | Install by 12/31/2027, 50% basis adjust | Must materially participate for non-passive; otherwise passive | 12/31/2027 | | Syndicated Solar/Partnership | 30% | Depends on offering; usually passive | Passive unless truly hands-on | 12/31/2027 |

Closing Thoughts

• Main takeaway: Solar tax credits are powerful tools, but eligibility, timelines, and passive loss rules create substantial limits—especially for syndicated solar investments.
• Nathan Sosa’s advice: “If you have a ton of passive income to offset — great. Otherwise, don’t expect these investments to magically reduce your active income tax bill.” (31:00)
• Consult a knowledgeable tax advisor before making any investment aimed primarily at reducing taxes.

For more details, access Hall CPA’s white paper on solar promoters via the link in the show notes.