Saturday, March 20, 2010

Are SRECs taxable? The Accountant Speaks

I've made several posts already about whether or not SREC income is taxable or not.

I talked and emailed with my accountant recently.

Here's what he wrote: "I think it will eventually be taxable but there is no ruling at this time."

That's consistent with everything I've read and posted, in that there really is no definitive statement by any authority on the issue. My plan is to consider it non-taxable until I hear otherwise.

By the way -- it's been so sunny this week that our meter is spinning backwards at a velocity that reminds me of summertime!


Anonymous said...

That's what my accountant said too when I asked him...he said as far as he knew, it was not taxable right now.

Just signed up for my 9.2kW system and can't wait to get it installed!

Anonymous said...

Here are my thoughts on the SRECs and taxable income topic. ANY INCOME YOU RECEIVE IS TAXABLE whether if it is from selling items on EBay or selling SRECs. However, if it does not lead to a PROFIT then how can it be reported.

Key Point – To sell SRECs I had to install a Solar PV setup and that cost me money. My initial cost to sell those SRECs was my total cost of the PV installation less the federal and state incentives. So the proceeds from my SRECs is offset by the cost of the Solar PV system. Therefore, one should not have to declare the proceeds until the total cost of the system has been reached.

For example – my PV system cost me $14320 after federal and state grants.
I received $720 for SRECs in 2009 = my cost is reduced to $13600. If I get $1200 for SRECs in 2010 = my cost is further reduced to $12400. It is not until my total cost is zero that my SRECs will give me a profit. Keep in mind, I am selling my SRECs to recoup my initial investment in solar not to initially profit from selling SRECs. That is how I am going to proceed.

Another way to look at it is that my $14320 investment needs to be depreciated over time. If a Tax expert purchases a computer for $3000 and the useful life is 3 years – it is depreciation over the three years. So if the Tax expert makes $1000 in profit the first year – that is offset by the $1000 computer cost using simple depreciation. Depending upon how you want to depreciate the Solar PV setup 5 Years, 10 Years or useful Life of 25 Years, that depreciation cost would offset my SRECs proceeds.

Moreover, it is just like when I sell items on EBay. I deduct the cost of the item, EBay/PayPal fees, shipping, and packaging from the sale price and then what is left is the PROFIT or “other income” on my 1040 that I report on my taxes.

If one keeps good records – as to the total cost of the PV system and SRECs received – it should be clear to the IRS that a PROFIT was not made until the system’s cost was totally paid off.

Anonymous said...

I just noticed your other post about SRECS and Taxes. Thanks for the mention - I am that Home Owner in Maryland -
Best wishes.

Anonymous said...

All income of any kind is taxable unless there is a specific exemption under the tax code. You can,t tke the position that toy have not made a profit yet since you have not meet your basis in the system Also heme owners are not eligable for deducting the cost of the system unless it was a bonafide commercial system which I doubt is the case here..please be careful since the penalties for not reporting income are fairly severe even if you take the mistaken advice of your accountant..

Lance E (Princeton NJ) said...

To the blogger who said that "as far as (his accountant)knew, it was not taxable right now", I would offer the unpaid-for advice that you should probably set aside whatever tax you would pay if you declared the income from SRECs as a precaution. Tax experts (not generally accountants) I have spoken with have said that ANY income is taxable unless there is a specific exemption under the tax code. Just because you or your accountant can't find SREC income in the tax code, doesn't mean it isn't income that is exempt from taxes.

If it makes you feel any better, you should talk to your accountant (or maybe another more conservative tax consultant) who can explain that you should be able to depreciate over time the system's installation cost which will offset any income tax you would have to pay on any income declared.

Think of it as follows: If you sold a lot of goods on Ebay, you should declare the income from that activity on your tax return. However you can also offset that income for tax purposes with the cost of the computer you would use to offer your goods for sale.

I hope that helps and that you don't have a very unpleasant surprise, if and when, the IRS comes knocking on your door.