Solar credit mayhem

[BHoffman]

Client relied on solar company advice that the total cost of a solar power system would be eligible for the form 5695 credit. Half the cost was paid for by a "utility incentive". My understanding of the instructions indicate that if the subsidy was not included in gross income, then it cannot be used for the credit. Makes sense.

I called the client to tell him that he owes this year. "What????? That solar credit should have given me a refund!!! The credit is over $10k!!!"

"The credit is $5k.", I reply gently.

"What????? It's supposed to be 30% of the total cost!!!!!!!"

"It's 30% of your out-of-pocket cost.", I whispered.

"NO IT"S NOT!!!!! I've had 5 people tell me it's the total cost INCLUDING THE INCENTIVE PAID BY THE UTILITY COMPANY!!!!!!"

I scan and email him the destructions for form 5695.

Somehow, this is all my fault and I'm an idiot.

[AZ-Tax]

I would prefer not to see one of these energy tax credits again

Any item that is sold by a saleman or salewoman that has a tax credit involved, I prefer not to do the tax return. Its like the sales person is the tax expert......then have him or her prepare your tax return.

[Gretel]

I scan and email him the destructions for form 5695.

Nice little term. You are right, the destructions were coming your way.

[Gary2]

The hard question is whether or not the incentive should be included. If it was paid directly by the utility, probably not, but if it was paid by an independent agency (which happens in many states), it's an unsettled issue.

Because of the 30% credit, a taxpayer could easily come out ahead if the incentive rebate turns out to be taxable.

[natiro]

Solar credit

Just curious whether you checked to see what the tax liability would be if incentive was included in income and credit was taken on 100% of the cost. Just a thought. I didn't run the numbers.

[death&taxes]

I had client with solar power installation with rebate reported on 1099-Misc. I included rebate on tax return at the client's tax rate of 25% and he got the credit for the rebate based on 30% - he was ahead by 5% by reporting the income. And yes, he also received a rebate on the balance of his out of pocket. I've got to do research for next year as he's selling his excess electricity to the power co. Anyone have a clue how to report that? Will see how it's reported by the Power Co.

[JJ EA]

Recent Tax Ruling

Late last year there was a Private Letter Ruling (do a search on PLR 201035003) concerning the AZ utility payments to customers when they installed a solar panel system. The ruling determined that the credit was calculated on the total paid by the customer plus the total paid by the utility. The amount paid by the utility was taxable income. After this ruling came out late last year the utility companies started issuing 1099 Misc for these amounts.

My question is: where is this reported on the tax return? The contract between the customer and the utility states that this is a purchase of renewable energy credit certificates that are created by the state and owned by the person having the system installed. It really doesn't matter, except in the situation where your client has a large capital loss carryover. If this is a sale of a capital asset then by putting it on Sch D, there is no tax incurred and they get the full 30% credit on the total cost of the system.

I work for someone else and do not sign the tax returns. My employer was concerned about a matching problem with the 1099 Misc. amount and did not want to put the sale on Sch D. I think this a possible option, but can it be defended?

Any thoughts?

[death&taxes]

I reported the 1099-Misc as Other income on line 21 with an attached statement. (I said that this was a PA Sunshine Grant - not self employment income). The first 1099 Misc., that was sen, t had the rebate in the non-employee compensation box! The return was filed. Then the client received a corrected 1099-Misc from Pennsylvania putting the grant in the other income box.

[Gary2]

Late last year there was a Private Letter Ruling (do a search on PLR 201035003) concerning the AZ utility payments to customers when they installed a solar panel system. The ruling determined that the credit was calculated on the total paid by the customer plus the total paid by the utility. The amount paid by the utility was taxable income. After this ruling came out late last year the utility companies started issuing 1099 Misc for these amounts.

Though this isn't directly related to your question, I notice that in this PLR, it appears that it really was the utility that paid the customer. So it still doesn't apply to my clients, where the funds came from a quasi-public agency that funds grants for renewable energy but isn't a utility itself.