30% Federal Tax Credit with State and/or Utility Rebates

I previously posted the following, and although it is possibly frowned upon to quote yourself, at the risk of that faux pas, and with an apology in advance for such a long posting, I am hoping to clarify some uncertainty or else find somebody with a definitive answer.
In Florida, as far as I know, and definitely as a non-tax expert with the legal disclaimer to consult your own personal tax adviser, it appears that the 30% deduction is on the total price of the system. After that is where things get questionable depending on your location and the actual rebate. In Florida, if you've gotten the state rebate, it is my understanding that the rebate is taxable. For some that will be an advantage, for others in the higher tax brackets it could be a disadvantage. Also, you do not get to choose if you want to count any rebate as income or a subtraction from your total system price 30% deduction. If the rebate is administered by a utility, it is possible that it isn't taxable if it is a "utility energy conservation subsidy." You would have to check with the utility and read Section 136 of the IRS code. If it is a payment for a future amount of PV production, or current or future Renewable Energy Certificates, it will be taxable. I don't know what happens if there is a time delay that spans tax years between putting the system in service and receiving the rebate.

I found this: http://www.cleanenergystates.org/Cas...itc-report.pdf that might be helpful reading.

Then, for whatever amount the 30% deduction ends up as, you can reduce the amount of tax owed for that tax year, even down to $0. Any remainder can be carried forward for the next year, and the next year, etc. BUT, I believe the time will run out in either tax year 2015 or 2016, people will have to double-check on that. So for somebody who pays little federal tax, it is possible that they could run out of time for their 30% PV deductions. For those fortunate enough to pay a large federal tax, there should be no problem using the deduction.

I was told that the proper method is to decrease the tax basis for the 30% Federal Credit, and the rebate, even from the state, would NOT be taxable. I now believe that was correct for systems installed prior to 2009, but not for those installed in 2009 through 2011. I now have found further information to indicate that the State Rebate is taxable.

"IRC section 48.a.4 does identify that the basis used for determining the credit is reduced by any government financing including rebates. However, The American Recovery and Reinvestment act of 2009, Part B, section 1103.b.1 repeals this requirement for installations dated 2009 through 2011." So the rebate should not be deducted from the gross amount to determine the credit. I found that information posted by solarman87 at: http://community.intuit.com/post/detail/axPchBjXWr4kAbacfA8pyY?page=1 , which was specifically talking about Pennsylvania rebates. (In Pennsylvania they issued 1099 statements listing the rebate as "Other Income," but Florida has not issued any 1099 statements.) But, the consensus was that since it didn't reduce your basis, it must be counted as income, although the original intent was to have the rebate not counted as income, but reduce the 30% tax basis.

I found the specific part of the code that was deleted, Section 25D(e) Paragraph 9:

(9) PROPERTY FINANCED BY SUBSIDIZED ENERGY FINANCING- For purposes
of determining the amount of expenditures made by any individual
with respect to any dwelling unit, there shall not be taken into
account expenditures which are made from subsidized energy
financing (as defined in section 48(a)(4)(C)).

Comments

  • Solar GuppySolar Guppy Solar Expert Posts: 1,962 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates

    OK, I read the recovery act wordage ... I can see this is going to be a mess

    What I would do is follow the old rules. You don't claim the rebate, you do adjust the system cost to be net the rebate. There is nothing saying you can't reduce the cost basis, only that you don't need too.

    Anything else is a guessing game, which you never want to assume with the government and if the congress made conflicting tax laws, I don't want to be in the middle of it as the IRS can pick anything they want for interpretation.

    Your going to be 100% on your own on this one Sub, there IS no correct answer as the laws conflict ( State rebate none tax and new recovery basis calculation )

    Just to be clear, I pick the old way as its considered fact, that State of Florida rebate money is tax free for solar, The other way, double dipping or trying to claim money not taxable as income is a huge unknown
  • sub3marathonmansub3marathonman Solar Expert Posts: 300 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates
    Anything else is a guessing game, which you never want to assume with the government and if the congress made conflicting tax laws, I don't want to be in the middle of it as the IRS can pick anything they want for interpretation.

    Your going to be 100% on your own on this one Sub, there IS no correct answer as the laws conflict ( State rebate none tax and new recovery basis calculation )

    First, I greatly appreciate the effort that Solar Guppy has made to help figure this out.

    Now, I actually did call the IRS about this. After going about 40 minutes between people, I talked to one person who said, "There's a lot of things the IRS hasn't ruled on." Shortly after that the call was cut off. So I guess everybody is left to try to figure it out. And, the IRS has said that you must figure it out correctly, there is no individual choice of which method to use.

    I think the only interpretation I can see is that by eliminating Paragraph 9, that means that you should not reduce the cost basis by any subsidies a person received for systems placed in service on or after 1/1/2009. Thus, if you receive a rebate, without reducing the cost basis as was done before, it must then be reported as income.

    One other little discussed item I also saw, and I think I'm correct about this because it seems pretty clear in the instructions, is that the federal credit must be accounted for as a reduction in the basis of the home. I don't know what they would say if you take the system with you, of course that is another debate.
  • Solar GuppySolar Guppy Solar Expert Posts: 1,962 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates

    You have a law for the state check, that hasn't changed and is settled law IRS speak, its non taxable , 100% for sure

    You have recovery law that takes a new look at computing basis, unsettled law = unknown

    On that other forum you linked, some are posting take the money and the full 30% , clearly, that won't make it in tax court, you can't double dip, that's fraud

    One thing you may have overlooked is you don't know how to report the rebate income, is it wages? ( requires self employment taxes ) is in investment income? ( different rates ) without a clear way to claim this as income your guessing and that may get you into even more trouble

    I say one last time, the old way is the only known result that is supported by law
  • sub3marathonmansub3marathonman Solar Expert Posts: 300 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates
    On that other forum you linked, some are posting take the money and the full 30% , clearly, that won't make it in tax court, you can't double dip, that's fraud

    Yes, I saw that too. I guess they are looking for an all expenses paid vacation.

    But yes, I do agree that it sounds extremely questionable. I'll try to set aside a couple hours to chat with the IRS again and see what they say.
  • xiphiasxiphias Solar Expert Posts: 52 ✭✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates

    The following link may cover ground already covered here, but anyway, might be useful

    http://www.solartoday-digital.org/solartoday/201103#pg14

    The prevailing wisdom in my locale seems to suggest that you either treat rebates as

    a) income, and pay direct tax, or

    b) subsidy, in which case the basis for tax credits is reduced by the subsidy amount.
  • sub3marathonmansub3marathonman Solar Expert Posts: 300 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates

    Yes, that is a very helpful link. That explained though what to do when the payment is coming from a utility for future energy production. The IRS is pretty clear there, it must be treated as income. If it is a true rebate from "an entity engaged in the sale of electricity, etc....... which includes government agencies," then it is non-taxable.

    State rebates are never specifically mentioned of course.
  • Peter_VPeter_V Solar Expert Posts: 226 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates
    Yes, that is a very helpful link. That explained though what to do when the payment is coming from a utility for future energy production. The IRS is pretty clear there, it must be treated as income. If it is a true rebate from "an entity engaged in the sale of electricity, etc....... which includes government agencies," then it is non-taxable.

    State rebates are never specifically mentioned of course.

    [standard disclaimer: I am not a tax expert]

    The way I read it, if it is a subsidy/rebate based purely on installed cost or array size, then it is NOT taxable and reduces the basis of the original installed cost and the 30% federal rebate.

    If it is an incentive based on performance, and/or requires you to turn over the RECs to the power company, then it IS taxable as income and does NOT reduce the basis for the 30% federal rebate.

    I.e in the first case you are getting a flat rebate based on your costs, and in the second you are SELLING something to your power company.

    In my case it's pretty clear that I have to claim it as income because my PBI pays out over 10 years. Plus the linked IRS Private Letter Ruling below is exactly the same situation I'm in. Heck might even be another customer of my power company.
  • sub3marathonmansub3marathonman Solar Expert Posts: 300 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates
    Peter_V wrote: »
    [standard disclaimer: I am not a tax expert]

    The way I read it, if it is a subsidy/rebate based purely on installed cost or array size, then it is NOT taxable and reduces the basis of the original installed cost and the 30% federal rebate.

    If it is an incentive based on performance, and/or requires you to turn over the RECs to the power company, then it IS taxable as income and does NOT reduce the basis for the 30% federal rebate.

    I.e in the first case you are getting a flat rebate based on your costs, and in the second you are SELLING something to your power company.

    I'm not an expert either, but if you read it long enough it actually starts to make sense. I too believe it is true about the performance based incentive/future RECs generated are taxable income. But I now believe that the state rebates, for systems installed after 12/31/2008, are taxable and must be reported as income and not as a deduction of the cost basis. However, the actions by Congress in deleting the entire Paragraph 9, instead of just the one word "not" add another layer of ambiguity.

    Here is IRS Section 48(a)4(C): Subsidized energy financing. For purposes of subparagraph (A), the term "subsidized energy financing" means financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.

    So, combining that with Section 25D(e) Paragraph 9: PROPERTY FINANCED BY SUBSIDIZED ENERGY FINANCING- For purposes of determining the amount of expenditures made by any individual with respect to any dwelling unit, there shall not be taken into account expenditures which are made from subsidized energy financing (as defined in section 48(a)(4)(C)).

    It then seems logical that combining the two: "For purposes of determining the amount of expenditures made by any individual with respect to any dwelling unit, there shall not (bold added) be taken into account expenditures which are made from" (substituting for subsidized energy financing (as defined in section 48(a)(4)(C))) "financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy."

    So now that the section has been deleted, as of 1/1/2009, to me that means that "For purposes of determining the amount of expenditures made by any individual with respect to any dwelling unit, there shall (bold added) be taken into account expenditures which are made from" (substituting for subsidized energy financing (as defined in section 48(a)(4)(C))) "financing provided under a Federal, State, or local program a principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy."

    And, since you can't "double dip," since the subsidy isn't reducing your cost basis it must be reported as other income, which is covered by Publication 525, which states,
    "Energy conservation subsidies. You can exclude (bold added)from gross income any subsidy provided, either directly or indirectly, by public utilities for the purchase or installation of an energy conservation measure for a dwelling unit.
    Energy conservation measure. This includes installations or modifications that are primarily designed to reduce consumption of electricity or natural gas, or improve the management of energy demand. "

    So since the state rebate isn't provided either directly or indirectly from a public utility, it is not excluded from gross income. And since Publication 525 lists "Energy conservation measure" as "other income," it seems that would cover any rebates received that weren't from a public utility.
  • Peter_VPeter_V Solar Expert Posts: 226 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates
    And, since you can't "double dip," since the subsidy isn't reducing your cost basis it must be reported as other income, which is covered by Publication 525, which states,

    Well just to throw a wrench in the works. The part that effectively said that you can't double dip is the part they threw away.

    With it gone, you could assume that now you can double dip, unless you know some other part of the law that says you can't?
  • BB.BB. Super Moderators, Administrators Posts: 29,509 admin
    Re: 30% Federal Tax Credit with State and/or Utility Rebates

    A caution... I don't believe that if an IRS phone support person tells you that "double dipping is OK" (even if you record the call), will excuse you from the IRS changing its mind tomorrow and assessing you fines and penalties.

    Be careful.

    -Bill
    Near San Francisco California: 3.5kWatt Grid Tied Solar power system+small backup genset
  • russruss Solar Expert Posts: 593 ✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates

    Recording the call without permission is illegal is it not?
  • BB.BB. Super Moderators, Administrators Posts: 29,509 admin
    Re: 30% Federal Tax Credit with State and/or Utility Rebates

    Depends on the State (many just require one person to have knowledge of the recording)--But I was trying to say that if you get bad advise from the IRS phone folks, the taxpayer is still responsible.

    -Bill
    Near San Francisco California: 3.5kWatt Grid Tied Solar power system+small backup genset
  • russruss Solar Expert Posts: 593 ✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates

    Agreed - I was just saying that a recording would not be allowed in most cases and would be illegal in most all cases.

    People often are not clear on what they are asking or being told. I have had many people tell me what their state offices said about DIY and rebates. Questions can easily be tailored to get the reply you want as many polls are.

    A document such as a notice or letter is a different story - then a person has something to start with.

    Russ
  • sub3marathonmansub3marathonman Solar Expert Posts: 300 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates
    Peter_V wrote: »
    Well just to throw a wrench in the works. The part that effectively said that you can't double dip is the part they threw away.

    With it gone, you could assume that now you can double dip, unless you know some other part of the law that says you can't?

    Yes, that part would be Publication 525, which shows that income derived from an "Energy conservation measure" is considered "Other Income," and must be entered on the federal tax form. Also, IRS instructions for "what is taxable" are pretty clear, "Taxpayers must report all income from any source and any country unless it is explicitly exempt (bold added) under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands."

    The state rebate was previously exempt because it wasn't income, it was a reduction of the basis of the installed property. Now that it isn't a reduction of the basis of the installed property, it must be income. Just as it can't be income and a reduction of the basis of the installed property, because that would be "double taxation."
  • Peter_VPeter_V Solar Expert Posts: 226 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates
    BB. wrote: »
    A caution... I don't believe that if an IRS phone support person tells you that "double dipping is OK" (even if you record the call), will excuse you from the IRS changing its mind tomorrow and assessing you fines and penalties.

    Be careful.

    -Bill

    Actually, from what I've read the IRS can NOT fine you for making a "good faith" mistake. I.e. if you claim a deduction, etc. that you reasonably believe you are entitled to, but then it turns out you aren't, you just have to pay the money you would have owed anyway and possibly interest on it.

    If an IRS representive tells you that you can claim a deduction and it turns out you can't, well that means you were operating under a reasonable belief that you were making a legal deduction.
  • Peter_VPeter_V Solar Expert Posts: 226 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates
    Yes, that part would be Publication 525, which shows that income derived from an "Energy conservation measure" is considered "Other Income," and must be entered on the federal tax form. Also, IRS instructions for "what is taxable" are pretty clear, "Taxpayers must report all income from any source and any country unless it is explicitly exempt (bold added) under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands."

    The state rebate was previously exempt because it wasn't income, it was a reduction of the basis of the installed property. Now that it isn't a reduction of the basis of the installed property, it must be income. Just as it can't be income and a reduction of the basis of the installed property, because that would be "double taxation."

    Fair enough, I guess I got it backwards.

    I really wish they would just switch to a flat sales tax instead of this complicated income tax BS. Trying to figure it out gives me migraines
  • dwhdwh Solar Expert Posts: 1,341 ✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates
    russ wrote: »
    Recording the call without permission is illegal is it not?

    In most states, it's not illegal to record a phone call or other private conversation as long as one party (for instance the one doing the recording) consents to it.

    The Federal government and 38 states allow "one party consent". A dozen states require "all party consent".

    http://www.rcfp.org/taping/


    Also, conversations which take place in a public place are fair game pretty much everywhere.
  • nielniel Solar Expert Posts: 10,311 ✭✭✭✭
    Re: 30% Federal Tax Credit with State and/or Utility Rebates

    sometimes it is sufficient to just warn that the conversation will be recorded and if the other party continues it is with full knowledge of the recording and implies consent by the continuation of the conversation. i have seen banks and utilities do this and you are left with a take it or leave it scenario for to not continue may be detrimental to your interest in doing business with whoever it is you are calling. you can do it too, but i doubt they feel obligated to talk to you.
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