Solar Net metering business relationship with city

[davidbrock500]

When I shopped for solar panels, one company explained that they had a tax specialist who would set up a business relationship between the homeowner and the city's power service due to the net metering agreement. This allowed for additional tax write offs for the solar along with the federal tax credits. Do you know how I can use this?

[Vanessa A]

There are not tax credits for solar net metering.  Solar net metering is when your panels produce more electricity than you use and your power supplier credits that electricity to your account for your usage for when your panels are producing less than you use.

There is a tax credit for installing the solar panels. However, there is not a credit for banking electricity with the city or utility company. 

Additionally, if they would pay you for the excess solar that is fed back to the company or city, this would become taxable income to you. 

[davidbrock500]

I feel I understand the credits with solar. What I've been told and read is separate from that though. It is a business relationship between me and the city that provides electricity. My solar produces excess in the daytime and this is transferred to the city's grid. They essentially give me a credit for the extra during the day and then give it back to me at night and throughout the year when I need it. This is referred to as net metering. Any excess I produce at the end of the year they do not pay me for it, they keep it. Essentially we have business agreement between us and from what I've researched, this allows me to "write off" portion of the solar expense over 5 years of depreciation through what's referred to as MACRS (Modified Accelerated Cost Recovery System). What can you tell me about this?

[RobertB4444]

That's depreciation.  And you can depreciate business assets.  So what they are suggesting that you do is create a self-employed business within your tax return that sells electricity and has solar panels as the tools that it uses to do that.

The problem that you have is that you don't have any income from this business.  The IRS expects a business to be a profit seeking enterprise if they are going to give you credit for a depreciation deduction.  Do you receive statements from the electricity company showing the equivalent payments that you are earning so you could enter that as income?  

@davidbrock500 

[davidbrock500]

Yes, my statement shows the amount of produced energy, the amount used and thus the amount stored as a credit. Does this satisfy the requirement?

[RobertB4444]

As long as it is a dollar amount.  

So you'll scroll down in the income section of your federal return and find 'Business Items' and click start next to 'Business Income and Expenses (Sch C)'.  Then you will follow all the prompts and answer the questions.  You will enter the electricity value as cash that you received.  Then you will enter the information about your solar panels as a business asset.  You will have to depreciate it over 39 years.  So you will deduct 1/39th of the value each year.  As long as that is greater than the value of the electricity that you are selling to the utility then you will have a loss every year.

@davidbrock500