After installation of a solar array, and having taken the federal tax credit, I am also receiving payments for each SREC I produce over the next 5 years.
Is this taxable income? I see no guidelines from the IRS on this. the cash credits come from the state as an incentive to install solar
Yes, the income from the SRECs is taxable. While the IRS does not mention SRECs specifically, in IRS Pub. 525 - Taxable and Nontaxable Income they state that "an amount included in your income is taxable unless it is specifically exempted by law."
You can enter this income as Miscellaneous Income using these steps.
- Click on Federal > Wages & Income
- In the Less Common Income section , click on the Start/Update box next to Miscellaneous Income, 1099-A, 1099-C
- On the Miscellaneous Income screen, click on the Start/Revisit box next to Other reportable income.
- On the Any Other Taxable Income? screen, click the Yes box.
- Enter the income on the Other Taxable Income screen, along with a description. Click Continue.
- You will be brought to the Other Miscellaneous Income Summary. If you have no more miscellaneous income to report, click Done.
Seconding Irene2805. I'm in New Jersey and have had solar panels up since 2008; we get 15 years of SRECs.
After beating my head against the wall trying to figure out how to handle the income from them, I went for the "Other Income" category and reported them as such, both Federal and State. (And, in with that, the income from the local Utility's Net Metering scheme, since, over the course of a year, the array on the roof generated more energy than was consumed from PSE&G over that same year. Another couple hundred bucks.)
In any case, a couple years after doing this, the IRS audited the results, decided that we were running a business (!) and declared that we'd have to file Schedule C and all.
This got me mad. Having Solar on the roof sure doesn't feel like a business; the Tax Credit when it went in said it was for residential, not businesses; and if it was for business, what about amortization, the investment cost of putting all that solar on the roof, and all the other business-related stuff?
Called the IRS. Back in 2009, most of the IRS people didn't know an SREC from a hole in the ground. Got routed to the "Business Desk". Explained my tale of woe. The lady on the other end said, "You're not a business - you're not providing services to anybody!". I took her name and number. She then forwarded the SO and I to the Complex Returns Desk. (There's a Complex Returns Desk. Whee.) The guy there.. KNEW WHAT AN SREC WAS! He also said we weren't running a business. Took his name and number. And asked, "So, just how do I report the income? Government subsidy? Other Income? Capital Gains (SRECs have zero cost, but they do have numbers that look like stock registration numbers.)?
He said, multiple times:
"The counsel for the IRS has officially stated that he has not made a determination on how to handle reporting for Solar Renewable Energy Credits."
The lady from the business desk did say that the IRS is sensitive to people putting in "Other Income". Dodgy home improvement contractors sometimes do this in an attempt to avoid filing Schedule C and associated bits of paper.
In any case, having wrote all this up, sent the Official Notice back to the IRS, saying "Other Income" was where it was supposed to be. They closed the case.
And, no kidding, two years later, sent me an identical claim about Schedule C and all. I copied the original stuff said, more or less, "This, again?", and they closed the case. Nothing since then.
I wish the counsel would get off his/her butt and get busy. There's _lots_ of people with SRECs these days.