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Froese
Level 1

Net Energy Revenue

We received a 1099-MISC from our utility for the amount of money we received for electricity that we generated in 2019 beyond our own use with our 20KW hydro-electric plant. I read other questions here relating to revenue for solar energy production, which say to recognize this revenue as "Other Reportable Income" (line 21.) However, this only allows revenue to be recognized, not expenses (maintenance and depreciation, in our case.) (We never received any tax deduction or credit for the initial investment in this plant.) I initially tried Schedule C, but this automatically figures self-employment tax, which according to these other answers for solar power revenue "...is not subject to self-employment tax." How (where) should this revenue (and expenses) be recognized?

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DavidS127
Expert Alumni

Net Energy Revenue

The treatment as Other Income on line 21 presumes that you are not engaged in a trade or business and thus the income is not subject to self-employment tax. Implicit in this assumption is that your electrical generation equipment is for personal use, and the associated expenses are not deductible.

 

If instead, you were to consider yourself engaged in a business of selling electricity at a profit, you would file a Schedule C, and report your income and expenses associated with the business.  If the business generates income, it will be subject to self-employment tax.

 

Note that the business of generating electricity for sale may be regulated by state or federal laws.

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2 Replies
DavidS127
Expert Alumni

Net Energy Revenue

The treatment as Other Income on line 21 presumes that you are not engaged in a trade or business and thus the income is not subject to self-employment tax. Implicit in this assumption is that your electrical generation equipment is for personal use, and the associated expenses are not deductible.

 

If instead, you were to consider yourself engaged in a business of selling electricity at a profit, you would file a Schedule C, and report your income and expenses associated with the business.  If the business generates income, it will be subject to self-employment tax.

 

Note that the business of generating electricity for sale may be regulated by state or federal laws.

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Carl
Level 15

Net Energy Revenue

TO add to @DavidS127 's response, if you treat it as a business and report it on SCH C so you can claim expenses, then you are required by federal law to depreciate all business assets utilized in the production of that income. That means you'd have to depreciate the cost of your solar panels over the next 39 years. Then when you sell the property in the future you are required to recapture that depreciation and pay taxes on it in the tax year you sell it. Recaptured depreciation is added to your AGI and can have the potential to bump you into the next higher tax bracket. So think this through before making a final decision. Once that decision is made in that first year, changing it is *NOT* easy and in some states not even allowed.

 

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