Solar SRECs and taxes

[Vic99]

Is the money made on these things taxable income? Fed and state (MA)? If so, what do you treat them as? Capital gains? Other income? Business? I can see arguments for any of the above, but want to know if anyone has had any real experience with IRS or a lawyer on this.

Even if I wanted to play it safe and just pay a tax (and I don't), I'd need to know how to tax it properly. Obviously if I guess wrong they'll still get mad and assess me penalties for trying to do the right thing. However, late penalties and interest can sure hurt my roof top PV break even point.

Perhaps, though, since SRECs are an incentive, it's not taxable. Perhaps I'm dreaming. What do you reckon?

 

[Slow1]

Unfortunately I cannot cite authoritative sources, but after researching this last year along with my wife (who happens to be a CPA) the conclusion we came to is that yes they are taxable and we are going to put them under "other income" as that fits it best. As this category doesn't have a tax advantage, if the IRS prefers to put it on another line it is highly unlikely to actually change the net taxes due and thus not result in interest/penalties. As there isn't a clear (at least as of last year) answer on where to put it from the IRS it would be difficult for them to hold a penalty if your only issue is putting it on the wrong line.

Want to have more fun complicating the question? Do you consider the value at time of issue or when you sell them - i.e. if I get some added to my account in 2013 but then don't sell them until 2014 when did the taxable event occur?

 

[Doug MacIVER]

Is the money made on these things taxable income? Fed and state (MA)? If so, what do you treat them as? Capital gains? Other income? Business? I can see arguments for any of the above, but want to know if anyone has had any real experience with IRS or a lawyer on this.

Even if I wanted to play it safe and just pay a tax (and I don't), I'd need to know how to tax it properly. Obviously if I guess wrong they'll still get mad and assess me penalties for trying to do the right thing. However, late penalties and interest can sure hurt my roof top PV break even point.

Perhaps, though, since SRECs are an incentive, it's not taxable. Perhaps I'm dreaming. What do you reckon?

I've been told national grid doesn't pay, will only show a credit. can't say what nstar does. this is an assumption but you improved your home. unless your home is a certain value, no tax.bg probably knows for sure.

 

[Vic99]

It's true national grid doesn't pay, they give you a credit. However, SRECs are separate from national grid. It's a traceable credit market, essentially leveling a penalty to the electricity producers that do not make X percent of their power from renewables. They can buy these credits to make up for their short fall.

 

[Doug MacIVER]

It's true national grid doesn't pay, they give you a credit. However, SRECs are separate from national grid. It's a traceable credit market, essentially leveling a penalty to the electricity producers that do not make X percent of their power from renewables. They can buy these credits to make up for their short fall.

what little I read about srec, sounds like if you sell them you have income. that usually taxed,right. depreciation probably is a way out as it is when you have rental property. unlike property, solar may have no residual value at end of useful life,so an accountant is probably needed here. any idea how much your srec units will be worth. just curious.

 

[Slow1]

Hmm... I don't think that homeowners can depreciate things. Set up as a business then yes, but I would't go there for my home solar array. I'm sure that the ability to depreciate the systems is part of the value proposition for the leasing companies.

As to the value of SRECs - for my array I'm making about 7 a year and while the market has been as low as around $200 ea (currently about $240), I was able to get $285 a piece for my last batch (got lucky with the 'last chance' auction). So, something around $1400-1800/year. Not a huge amount but when you consider that the power generated by my array is only worth about $1000/year it is a significant part of the 'payback' calculation.

 

[Doug MacIVER]

Hmm... I don't think that homeowners can depreciate things. Set up as a business then yes, but I would't go there for my home solar array. I'm sure that the ability to depreciate the systems is part of the value proposition for the leasing companies.

As to the value of SRECs - for my array I'm making about 7 a year and while the market has been as low as around $200 ea (currently about $240), I was able to get $285 a piece for my last batch (got lucky with the 'last chance' auction). So, something around $1400-1800/year. Not a huge amount but when you consider that the power generated by my array is only worth about $1000/year it is a significant part of the 'payback' calculation.

the way I hear it, if you have a two family home there is a drepreciation allowed and improvements ect. you'll pay it back after if you sell. sounds like a pretty good deal for ya.

 

[Slow1]

the way I hear it, if you have a two family home there is a drepreciation allowed and improvements ect. you'll pay it back after if you sell. sounds like a pretty good deal for ya.

Sure - two family home, live in one side - rent the other out. Stick all the cells on the rental side ? Then you can in fact depreciate the side being rented (but not the side you live in) and you'd best hire a tax pro for filing as it gets very interesting tracking all the costs and keeping your basis straight when you sell. This situation doesn't apply to very many folks looking at solar I'll bet. And yes, you do pay back all that depreciation when you sell as your basis goes down (and you can't claim the exemption for gains on rentals so it all becomes taxable vs if you live in the home as your primary residence you a considerable amount of capital gains can be taken tax free). However, we digress

If one wants to not think about the solar asset and desires to keep it all super simple, that is an argument for leasing the array. I believe most leases have all the SRECs go to the company that owns the array so you don't even have to worry about tracking SRECs or taking income for the sales...

I do wonder, however how the proposed new rule for the next Mass carve-out will play on the market. The one I reference is the ability for residential array buyers to get 10 years worth of anticipated SRECs up front on commissioning of the system. For me this would have translated to something like 70 SRECs, or over $16K up front which would have basically covered my out of pocket expenses putting up the array... If the rule goes though I'm going to investigate the possibility of adding to my array and consider heating with electric. I wonder how the finances will play out - if I could have put up my array for about $2k out of pocket it would have been such an easy decision! I can always find a use for cheap electric

 

[georgepds]

I just sold my first SREC ( ~$250)

The folks at SREC trade (where I sell my SRECs) say the income in not taxable... here is their conversation with the IRS

"Our conversation with the IRS. We spent a great deal of time on the phone with the IRS seeking answers to these questions. Everyone there was extremely helpful, but it took being transferred to several individuals within the organization, before we were able to get a hold of someone with some expertise in anything related to our questions. The first thing we learned is that there is no explicit ruling in IRS documentation relating to Renewable Energy Credits, so any information we were given was based on the interpretations of the individuals at the IRS that we consulted. Therefore, they were unable to provide anything in writing. The key question we were told to ask in this situation was “Are the SRECs sold in order to make a profit.” As long as that answer is no, then the individual we spoke to saw no reason why SRECs should be considered taxable income. Since you are selling the SRECs in order to recoup your investment in solar which supports the government’s intitiative towards clean energy, then you are not profiting from the sale of SRECs. However, if you have begun to turn a profit on the investment as a result of inflated SREC prices (or any other reason), then you should report it to the IRS and pay taxes on the revenues from any SRECs you sell to make a profit."

http://www.srectrade.com/blog/srec-pricing/srecs-and-taxes