I received an EQIP grant that qualifies for exclusion under I.R.C. 126 rules, how do I exclude this income reported on a 1099-G?

[RobertB4444 · Accepted solution]

So there are two ways to report an EQIP grant.  (I like the second but I'll tell you both)  Before you report it, though, you need to have the expenses that are associated with it for improving the water and environment separated out.  

Then, in option one, you just don't report the grant.  If it is spent on improving the water and soil it isn't taxable and any expenses that it is spent on are not deductible.  So you just leave it off.

The other option is to report it using the 1099-G input and then enter an expense on the schedule F that that generates that is exactly equal to the amount of the grant.  The expense should be called "Environmental Quality Improvements."  And it wipes out the taxable income.  

Like I said, I like option two because it keeps the IRS from asking questions.  But either option is perfectly legit.

[taylor-ewald]

Thank you very much!

[Axehacker]

So, my situation is similar, but a little deeper. I have EQIP funds available, but the property is in an irrevocable trust and we do not have a farm or business on the property. Can I use this example when I file taxes for the trust to avoid the taxable income? I have $6k funds coming in and I'll be spending the full $6k for forest improvement. 

[DMarkM1]

Yes.  In the Trust interview, enter the income in "Other income" as 1099-G EQIP and then in "Other Deductions" as EQIP Costs.  

[Axehacker]

Hey, thank you so much.  Trust interview? You mean the trust tax filing?

[DMarkM1]

Yes.  In TurboTax business the Trust Return interview for the form 1041 preparation.  

[e15652]

Do you report the EQIP grant in 'other 1099-G' section OR 'Farm Income and Farm Rental section'?  You can't enter in both or will be duplicated.  

Where do you enter the "Environmental Quality Improvements" for grant offset?  In what section?  Is it misc expenses?  

[BrittanyS]

See RobertB4444's post above.  You will report the grant income under the 1099-G section and then the expenses under Schedule F.  This will cancel out the income.  I have copied his post here for easy review:

"Report it using the 1099-G input and then enter an expense on the schedule F that that generates that is exactly equal to the amount of the grant.  The expense should be called "Environmental Quality Improvements."  And it wipes out the taxable income.

@e15652