We purchased a solar system in 2020 for $55,000. In 2021, we received an income check for our SREC's. How do I file this investment and income?

[DanPaul02]

deleted incorrect reply

[Opus 17]

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@DanPaul02 wrote:

After you receive enough income from SRECs to recover the $55,000 investment, then additional SREC's will be taxable income.

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The credits are taxable income from day 1.  See IRS ruling

https://www.irs.gov/pub/irs-wd/1035003.pdf

You would report them as "other income".  You are not a small business selling electricity, so this is not going on a schedule C or subject to self-employment tax.  

The payor is probably required to issue a 1099-MISC if the payment is more than $600 in any year.  You can enter this as income.  Even if the payments are smaller and no 1099 is issued, you would enter this as other miscellaneous taxable income.

[crkemper360]

I understand from reading previous posts (posted several years ago) that the income from SRECs is considered taxable income by the IRS, and should be shown as  "Other Income".  BUT, what value is to be used?  The sale of SRECs is typically through a broker (SRECTrade, SolSys, etc.) and I don't receive a 1099-MISC from the broker.  Is the gross value to be used on my tax forms or the net value (total value minus the brokerage fees)?

[Opus 17]

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@crkemper360 wrote:

I understand from reading previous posts (posted several years ago) that the income from SRECs is considered taxable income by the IRS, and should be shown as  "Other Income".  BUT, what value is to be used?  The sale of SRECs is typically through a broker (SRECTrade, SolSys, etc.) and I don't receive a 1099-MISC from the broker.  Is the gross value to be used on my tax forms or the net value (total value minus the brokerage fees)?

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Your income is what you actually receive, in dollar value, of either money or credits against future bills.  You don't report the gross (in this case) because you are not a business and have no way to deduct the broker fees as an expense.  Just report the net to you. 

[crkemper360]

Thanks a bunch.

Sorry, another question: can I reduce the 'net SREC' value by subtracting from it the cost of registering the solar panel facility with the broker, say $50 for PA?

[Opus 17]

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@crkemper360 wrote:

Thanks a bunch.

Sorry, another question: can I reduce the 'net SREC' value by subtracting from it the cost of registering the solar panel facility with the broker, say $50 for PA?

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I don't feel comfortable saying yes or no.  You can't deduct what would be considered "business expenses", and I feel there is a difference between "you sell for $100 but get a check for $80 because of the broker fee", and "you get a check for $80 but have to write a check for $50 to register your system."  In both cases I think the $80 is your income, not $100 but also not $30.  However, I don't feel concrete one way or the other, and a different expert may have a different opinion.  If audited, the best you can do is have your facts and figures written down, and have a rational explanation for the decisions you made.