Can I deduct the part of my taxable income that came from a state funded grant for low income individuals to replace a residential water well in a declared drought area?

[noramoss]

State of Oregon. WARRF grant.

[xmasbaby0]

What kind of document is the income reported on?   Do you have a W-2?   A 1099NEC?  Something else?

[DaveF1006]

It depends. Grants are usually not taxable if these meet certain guidelines.

1. Own and occupy a dwelling located in a Colonia and have evidence of ownership. • 
2. Have a total taxable income (based on the latest federal income tax form from all individuals residing in the household) that is below the most recent poverty income guidelines established by the U.S. Department of Health and Human Services. •
3. Have no delinquencies on any federal debt.
4. Not use the funds to pay off personal debt obligations.

If the grant money was reported to you on a taxable document such as a 1099, let us know and we tell you how to report and exclude the grant. Meanwhile, look at the link below issued by the USDA website regarding Rural Development.

Individual Water & Wastewater Grants

[noramoss]

It was reported on a 1099G. I did receive the income but had to use all of it to pay for the work that was done. It seems to me that now both I and the professionals that did the work will have to pay taxes on the same income.

[Vanessa A]

Were you a contractor for this or were you the recipient based on your income?  Also, which state was this for?

In general, if you are a contractor or not the beneficiary of the grant (you weren't the one that qualified based on income) and you profited from this, then you would enter it as income.  Then yes, anyone you subcontract with would also have to pay taxes on that income, however, you would take a deduction for the payments you made to the subcontractors.  You would need to issue the subcontractors a 1099-NEC for the work done and then you would take a deduction on your Schedule C or other Business return. 

If you are the individual benefiting from a grant that was given based on income, need and location, this would not be a taxable grant to you.  

Grants to Individuals

Grants to Organizations

[noramoss]

I was the recipient based on my income. I paid the contractors with the grant, exact amount as I was given. State of Oregon. WARRF program grant. They reported it with a 1099G so it counts as my overall income which puts me over the limit for the earned income tax credit. 

[noramoss]

Form 1099G. No I have just gotten responses that it should not be taxable as it is a grant. 

[DaveF1006 · Accepted solution]

Despite an earlier answer I gave you, the grant income is taxable according to this State of Oregon website information. 

The IRS mandates that some grants are taxable and this is one that is. Please select the link I included and scroll to the section that says Are these Funds Taxable and then select the plus sign. This will give you your answer.

If you filed your return, you need to amend your return to declare this income taxable again. To amend:

To amend your return using Turbo Tax Online.

1. Log into Turbo Tax
2. Select Scroll down Your tax returns & documents in your landing page.
3. Select Amend (change) 2023 return. 

To amend using the Desktop Software, go to:

1. Federal Taxes
2. Other Tax Situations>other tax forms
3. Amend a return

Once you are working in your return, remove the entry that you were instructed to do earlier and then efile the amendment. Thankfully, you are able to do this before April 16.

Edited 03/28/24|3:15 pm PST]

@noramoss 

[noramoss]

Thank you so much. You saved my year. With kindest regards, Nora

[Hollynatel]

I have a question about the same grant.  We also received the State of Oregon WARRF grant.  Thank you for your answers to this question.  My additional question is, can we still deduct this if our income is not below the poverty level?  We qualified for the grant, at the time, based on the criteria outlined by the State of Oregon grant program.  The cost of drilling our new well exceeded the maximum amount of the grant, therefore the entire award was used toward the drilling of the new well.  

Just want to make sure that we can still exclude this as income, knowing that our reported AGI for the year is not at or below poverty level.  Thank you!

[Hollynatel]

Hi, I'm wondering if I can talk to DaveF1006 about this same question?  I've contacted the chat, but I get conflicting answers.  I received this exact same grant and if it is taxable income, I owe a lot of tax.  If it can be excluded, I will get a large refund.  I hope to talk to DaveF1006!  Thanks!

[DaveF1006]

Yes, it is taxable income as stated this State of Oregon posted link. In an earlier answer I gave, I did not research this site and I do apologize for all the conflicting answers you have received. 

The IRS mandates that some grants are taxable and this is one that is. Please select the link i included and scroll to the section that says Are these Funds Taxable and then select the plus sign. This will give you your answer.

I realize this isn't encouraging news but the information is correct as stated. 

@Hollynatel