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deducting photovoltaic installation in 2011
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hectoranddebbie
Mueller Community

Posts: 106
Joined on August 9th, 2008
deducting photovoltaic installation in 2011
by hectoranddebbie on February 19th, 2012

Hello, Energy-conscious neighbors. We had photovoltaic cells installed on our house in 2011. We are now unsure as to how to deduct this on our taxes. Do we use the entire amount of the cost of the system, or only the amount paid out of pocket? We used a couple of rebate programs to pay the lion's share, but technically, diesn't that still mean we paid the enter amount and should deduct the total amount of the system?
 
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smittyhoo
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Posts: 445
Joined on November 4th, 2008
deducting photovoltaic installation in 2011
by smittyhoo on February 19th, 2012

No, you only get credit for what you personally paid. For example, if your system cost $20,000,000 and you only paid $1 you only get credit for $1 on your taxes.
 
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hectoranddebbie
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Posts: 106
Joined on August 9th, 2008
deducting photovoltaic installation in 2011
by hectoranddebbie on February 20th, 2012

So, to clarify, if we had paid the entire amount out of pocket and received the rebates ourselves (instead of turning them over to the solar company as payment) we would have had to deduct the rebates for the credit on our taxes. Well, that doesn't make sense to me, but I guess it shouldn't surprise me. They're going to take it any way they can get it, I suppose. Thanks!
 
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Betsy
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Joined on December 17th, 2007
deducting photovoltaic installation in 2011
by Betsy on February 21st, 2012

Exactly. We took the Pecan Street rebate ourselves so I asked them whether I'd be receiving a 1099-MISC from them. I thought I would take the credit on the amount I paid out of pocket and then claim the rebate as income. They instructed me to do as smittyhoo says above. Take the amount you paid minus all rebates, and use that amount for your credit.
 
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RosscoB
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Joined on December 1st, 2008
deducting photovoltaic installation in 2011
by RosscoB on February 21st, 2012

Whether or not you pay and are reimbursed by pecan street and the city of Austin or have them pay your solar installers is irrelevant to the conversation. Without going to far into tax law, this is what the IRS code says.

In incentives recieved from local utilities for the installation of solar equipment should not be included in income, but instead reduce the basis of the underlying equipment.

What this means is, you should reduce the overall cost of the system by the incentives you receive. It does not matter that the incentive was paid directly to you or the installer. The treatment is the same either way.

There however seems to be some wiggle room in our case. The funds recieved from the city of Austin do not match the IRS definition of an incentive, because it requires that we give up our PV credits for the life of the system.

If that is the case, the payment from the city of Austin should be included in income and you should calculate your federal tax credit on the cost of the system less the Pecan Street incentive.

You should consult your tax advisors for more information.
 
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Dan Murphy
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Joined on July 21st, 2009
deducting photovoltaic installation in 2011
by Dan Murphy on February 21st, 2012

You net them. You should not have to report a "rebate" as income, as it is simply savings. Reporting it as income might make it subject to taxation, which would make no sense.

Just as using a coupon at a store simply lowers the amount you end up paying for something, the rebates are a discount on a purchase you make with after tax dollars.

Taxing your money twice would be a poor incentive!
 
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RosscoB
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Joined on December 1st, 2008
deducting photovoltaic installation in 2011
by RosscoB on February 21st, 2012

Have your tax professional research IRC §136 and the definition in §136(a) of a subsidy. I believe the amount recieved from Pecan Street meets the definition of a subsidy. However the amount from the City of Austin represent the purchase of my PV credits for the life of my system. This exchange with the City of Austin is quid pro quo (PV Credits for Cash) and should be handled accordingly.

A conservative approach to the issue would be to report your net expenditure (basis in the property) on form 5695 for your §48(a) tax credit.

Alternativly, a far more aggressive position would be to recognize the proceeds from the sale of your PV credit on Schedule D as a short term sale. Since you have basis in the property you sold, that basis could be used to reduce the amount of gain to be recognized. Of course you would have to calculate your basis. It should be: Total Cost - PSP - Federal Tax Credit

Everbodies tax situation is different, but I personally would prefer to recognize the payment from the city of austin as income, calculate a short term sale transaction, recognize a gain or loss and take a tax credit on the larger dollar amount than report the net cost for purposes of the tax credit.

136(a)Exclusion.— Gross income shall 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.

136(b)Denial of Double Benefit.— Notwithstanding any other provision of this subtitle, no deduction or credit shall be allowed for, or by reason of, any expenditure to the extent of the amount excluded under subsection (a) for any subsidy which was provided with respect to such expenditure. The adjusted basis of any property shall be reduced by the amount excluded under subsection (a) which was provided with respect to such property.

If you are unsure about any of it, please consult a tax professional. This does not mean H&R Block (grin).

Now for the disclosure, because this goes way beyond a simple post.

As required by United States Treasury Regulations, you should be aware that any tax advice contained in the body of this e-mail was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
 
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smittyhoo
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Joined on November 4th, 2008
deducting photovoltaic installation in 2011
by smittyhoo on February 21st, 2012

I reiterate the federal tax credit is as simple (Total Cost-Total Incetives) * .30 on Form 5695. You should not treat any of the incentives as income. The way all the incentives are organized you never receive any of the incentive moneys and therefore you never have any ownership to sell. They are go directly to the vendors and by structuring it this way all of the potential tax complexity for the homeowner is avoided. And if you still don't believe me, it says in IRC Section 136:

Energy conservation subsidies. You can exclude
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.

It is crystal clear that this is not income.
 
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RosscoB
Mueller Community

Posts: 18
Joined on December 1st, 2008
deducting photovoltaic installation in 2011
by RosscoB on February 21st, 2012

Quote:
I reiterate the federal tax credit is as simple (Total Cost-Total Incetives) * .30 on Form 5695. You should not treat any of the incentives as income. The way all the incentives are organized you never receive any of the incentive moneys and therefore you never have any ownership to sell. They are go directly to the vendors and by structuring it this way all of the potential tax complexity for the homeowner is avoided. And if you still don't believe me, it says in IRC Section 136:

Energy conservation subsidies. You can exclude
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.

It is crystal clear that this is not income.


I agree 100%. This position should not be questioned as it is spelled out exactly as the IRS code is written.

That being said, the payment from the City of Austin Utilities does not match the IRS definition of "subsidy" because it requires you to give up your PV credits for the life of your system in order to receive it. A "subsidy" is a payment that does not require consideration be given in exchange.

This nuance leaves the treatment of the City of Austin payment up for debate.



 
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smittyhoo
Mueller Community

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Joined on November 4th, 2008
deducting photovoltaic installation in 2011
by smittyhoo on February 21st, 2012

RosscoB,

I totally get what you're saying with the value of the SREC. However, to my knowledge, a SREC has no economic value in TX to a homeowner because there is no SREC homeowner market in the state of TX. A homeowner cannot sell an SREC to anyone. So, it's a wholly moot point that you are making. I think Austin Energy just makes you sign over the SREC because it helps them achieve renewable energy generation targets and it also protects them from a bunch of homeowners coming after them for money if in the future a SREC market in TX does develop.

Now, if we lived in a state where they do have an SREC market, like NJ, what you are saying would make sense. However, the solar incentives in NJ are structured differently precisly because an SREC market exists. In NJ, you wouldn't be getting this big chunk of money upfront, you'd get a little chunk of money each year over the life of the system based on the market value of the SREC that year. If instead, NJ offered to "buy-out" the homeowner at installation then that would align with what you are describing and I believe the tax treatment you are describing would make sense.

So, feel free to file your taxes however you want but I just don't think that it makes sense to file it the way you are saying in TX based on the realities of the TX solar SREC market. There is a reason no one has been advised by any solar company to file it the way you are describing.
 
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