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SunnyBoy 3000 US, 18 BP Solar 175B panels. -
I'm on my phone, I'll get you a link later. I do know that if you plan on paying taxes on the utility incentive, you won't have a single problem with the IRS. Its when people try to claim the full 30% AND claim the full rebate without paying taxes on it, that is when problems arise.With regard to B, what I mean is this: you wrote "Pay 30% taxes on $5000=$1500". I assume you meant that you get a 1099 for $5,000, so you have to pay taxes on that $5,000 as if it were income. But there is no 30% tax bracket, so most likely you'd pay either 28% or 33%. It's a minor difference in tax amount, but critical to understanding what you meant!
With regard to E, do you have a link to the IRS ruling on this? A clear document from the IRS would save the expense of an accountant, who would just tell me what's in that document.
Finally, putting it all together, I think what you're saying is that if you don't get a 1099, you have a choice of:
1. Taking the 30% federal tax credit on only the net cost of the system, and not paying taxes on the rebate; or
2. Taking the 30% federal tax credit on the entire system cost, and paying taxes on the rebate.
If you do get a 1099, of course your only option is #2.Comment
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IRS form 5695
IRS form 5695 for the Fed tax credit. Haven't had anyone receive a 1099 from any utility I've ever worked with in SoCal. Some of the utility rebates have been quite substantial in excess of 20k. Check with your tax adviser for a professional and legal opinion.Comment
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In Arizona and other states, the utility automatically sends you a 1099 after the customer or the installer have received the rebate. The IRS essentially looks at a utility rebate as additional income going to you, income that must be taxed. Some have tried to argue that the rebate is not actually income but a trade where the utility company gets value back in solar power credits. Thus far that argument has not been all too successful.
Here is some guidance the IRS provided in 2010.
3. The Taxpayer shall be required to
treat the REC payment as gross income
pursuant to § 61(a).
This clarifies as REC payments as taxable, in the same manner, utility incentives are also taxable. In general in America, with some limited exceptions, if you receive money from a third party, that money is regarded as taxable income. The murkiness of these issues is why it makes it worth to spent a bit of money to speak with a quality accountant before you go all in on an investment and end up getting audited. The solar installer will most certainly not provide the customer with any form of assistance should that occur.Comment
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As far as I know, NYSERDA, the New York state agency that provides the rebates (actually incentives paid to the installer) does not send 1099 forms.
What it comes down to is what exactly the wording on IRS Form 5695 means, as this is the form one has to file to get the 30% tax credit:
"If you received a subsidy from a public utility for the purchase or installation of an energy conservation product and that subsidy was not included in your gross income, you must reduce your cost for the product by the amount of that subsidy before you compute your credit. This rule also applies if a third party (such as a contractor) receives the subsidy on your behalf." (emphasis mine).
So, what's a "public utility"? NYSERDA isn't a utility at all. I don't know why the IRS would force you to reduce the cost basis for the credit by rebates only from public utilities but not other entities. But maybe that's actually not their intent - maybe they mean that any form of rebate should reduce the cost basis, but the statement is just poorly worded.
Opinions? (Yes, I know, consult a tax accountant. Eventually I probably will, but for now I'm more interested in knowing what other people have done - particularly those who did NOT get a 1099. Did you use the entire system cost or the rebate-adjusted cost? And what was the source of the rebate?)Comment
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I recommend not bothering to report it as income - when they throw you in for a few years you can blog about the experience.
Maybe a few of us can even send cookies from time to time.
When people try to be more clever than the IRS the IRS normally wins - since they make the rules.
Only get creative if you are willing to pay the possible penalty.[SIGPIC][/SIGPIC]Comment
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The question is not whether to report the NYSERDA incentive as income (it isn't because of the Section 136 exception for subsidies for energy conservation measures - see the document that KRenn linked to), but whether to reduce the basis of the system cost by the amount of the incentive when calculating the federal tax credit.
It's also not a question of "being more clever than the IRS" or of "getting creative". It's a question of what the IRS rules actually are. It's unclear because of the wording on Form 5695. I fully intend to follow the rules, but in order to do so I need to understand them -- and your cracks about being thrown in jail aren't exactly helpful.Comment
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No one here can answer your question definitively but think about it: it makes no sense for some rebates that reduce the cost of your system to affect the tax credit and not others. Ultimately, you'll have to talk to an accountant who is familiar with the the ins and outs of the the tax credit for solar in New York. If you are aggressive in your tax filings, then you could make a case for arguing that NYSERDA is not a public utility. Consequently, the IRS is unlikely to throw you in jail and might even dispense with the penalty and only charge you interest if they come after you. Of course, you might have to undergo an audit and spend a lot of back and forth time and effort dealing with the IRS. Not sure it's worth it especially when your interpretation defies basic logic and relies solely on IRS instructions for a single form. YMMV.Comment
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Apparently you've understood that document to mean something entirely different. The 136 exception does not apply to solar electric system incentives because the utility company or other authority is often times get an inherent interest in that system. I had that confirmed through the IRS in 2010 as well. Just as the letter says "IF the taxpayer is receiving REC's, they can go ahead and take the WHOLE 30% tax credit on the system because they will be paying taxes on those REC's."
If you're going to be paying taxes on the incentive amount for NYSERDA(its irrelevant whether the money comes from a public utility, a private company or otherwise, its still money going into your pocket that you didn't actual pay out for the system), then you take the gross 30% on the entire system. It is the absolute safest way to do it.
Section 136 provides an exception
to this general rule, stating that gross income
does not include the value of any subsidy provided (directly or indirectly) by a public
utility to a customer for the purchase or installation of any energy conservation
measure. Section 136(b) provides, in
relevant part, that a taxpayer may not take a tax
credit (such as the credit under §
25D) for an expenditure to the extent of the amount
excluded as a subsidy under §
136(a) with respect to the expenditure.
In the current situation, Taxpayer sold all of
the environmental attributes
associated with the RECs to Public Utility in exchange for a payment. As such, Public
Utility’s payment to Taxpayer is neither a rebate nor purchase price adjustment, since
Public Utility has no reasonable nexus to the cost or sale of the subject property from
the vendor,
X
. Also, the payment is not a “subsidy” intended to facilitate the acquisition
of property deemed advantageous to the payor, though Public Utility may make such payments in other contexts. Rather, Taxpayer represents that the transaction between
the parties is effectively a sale or exchange of property and property rights. Public
Utility will in fact make no payment to Taxpayer absent the transfer of Taxpayer’s
valuable property interests (namely, the RECs associated with the Residential Solar System purchased by Taxpayer from and the parties specifically state that the
subject payment is to be made in consideration of the transfer of such property
interests. Based solely on the information submitted and representations made, we
conclude that the proceeds from this sales transaction are not within the purview of
§ 136. Consequently, Taxpayer must include gain from the sale of the RECs to Public
Utility in Taxpayer’s gross income under §
61(a). Further
, Taxpayer is not required
under §136(b) to reduce the basis in the Residential Solar System. Taxpayer
represents that the Residential Solar System generates electricity for Taxpayer’s
residence located in the United States. Thus, Taxpayer may take a cr
edit for 30 % of the expenditures for qualified solar electric property, and Taxpayer does not have to
reduce the expenditure by the amount of the REC Payment.Comment
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Good one KRenn - Trying to play word games with the IRS is almost always a loser - the IRS makes the rules. Seems everything is clear enough and the intent is certainly clear.
Ian - Your high priced accountant?[SIGPIC][/SIGPIC]Comment
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This is from CALSEIA, decent source for solar information.
When financial inducements for consumers to consider solar for their homes was created in the late 90s, the California Energy Commission was careful to call the incentive a ‘buy-down’ rather than a ‘rebate.’ This was done partially to alert solar customer to the fact that the cost of alternative energy systems had been reduced (‘bought-down’). When a tax credit is earned for the installation of a residential thermal or photovoltaic system, it must be applied to the reduced cost of the project, after taking the ‘buy-down.’ The IRS is also very clear in its advice:
If you received a subsidy from a public utility for the purchase or installation of an energy conservation product and that subsidy was not included in your gross income, you must reduce the cost for the product by the amount of that subsidy before you compute your credit. This rule also applies if a third party (such as a contractor) receives the subsidy on your behalf. (IRS form 5695 instructions 2009). Note that the IRS includes a residential solar projects within the IRS’s definition of an energy conservation product.
It is made obvious throughout the IRS Tax Code (Title 26 ~25D) that any rebate in any form from anybody that reduces the final cost of a product or installation must also reduce the basis for the computation of the tax credit (the rules are different for businesses – see CalSEIA’s online summary under ‘Tax Credits’).
Taxpayers must use actual cost when figuring the tax credit credit.
This makes it pretty clear that if A. the subsidy/incentive is not being taxed or included in your gross income then B. you need to reduce the cost of the system for the purpose of determining the 30% tax credit accordingly.
At this point it's gotta seem pretty cut and dry. If you're taxed on the incentive, take the 30% off the gross number, if you aren't paying taxes on the incentive, take the 30% off the net number.Comment
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+1 Krenn
+1 reduce the tax tax credit eligible amount by whatever incentives you get from the utility or other entity.The Renewable energy TC hasn't been a red flag for anyone I know. If your the type that gets audited you likely still will. Whats the difference in the amount if you are "aggressive" or if you plaY it safe?Comment
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I plan to have my accountant work it out two ways, One - claiming the rebates as income and taking 30% of the entire amount and two - not claiming the rebate and taking 30% of my out of pocket cost then doing whichever one is more advantageousComment
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$2,000. I've never been audited, but then again my tax returns are pretty consistent from year to year. That would change in the year I claim this credit.
If you live in a state with state income tax, and your federal tax bracket is 28% or higher, it will almost certainly work out better to NOT claim the rebate as income, because if you did you'd have to pay both federal and state income tax on it. Unless rebates are excluded from income by your state's law.Comment
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