@Candyfoot88 wrote:
I should add, my contract with Freedom Forever is the company I am asking for reimbursement, since it is the company that backs the solar guarantee.
I still don't understand the relationship. I looked at Freedom Forever's web site and couldn't figure out what they actually do.
Here's how I understand a typical solar power installation. Suppose you purchase panels for cash and connect to the grid. You only draw from the grid when your panels produce less than you need. If your panels produce more than you need, your meter runs backwards, meaning you are selling power to the electric utility (sometimes at the retail price and sometimes at the wholesale price, depending on the state). Suppose you use 2000kWh in a month, at 10 cents per kWh. That's $200. If you produced 1500kWh, then you had to buy 500 kWh and you paid $50. If the next month you produced 1500 kWh again but only used 1200 kWh, your meter runs backward, you owe nothing, and the electric utility pays you $30, either in cash or as a credit on your bill. As I understand things, that $30 is taxable income to you, although it may not get reported and many solar owners may be able to get away with not paying tax on it.
Instead of paying cash for your system, you can finance it with a lease it from the company or a power purchase agreement. These agreements may have very different terms and I can't help you without seeing your actual contract.
Now, to your specific issue, I don't quite understand the problem. If the only problem was the monitoring was down (Freedom Forever did not know how much power you made), but the system was still making power, you should still have been drawing less from the grid and paying less to the utility. Freedom wouldn't know how much power you were making, but the utility would know you were pulling less from the meter. If you were actually pulling extra power from the public grid, that makes me think that your entire system was down and not producing power, and it was not merely a problem with monitoring.
Freedom Forever guarantees that you will produce a certain amount of power. If you produce less than the guarantee, they will pay you back. It sounds like that is the program you applied to. If so, then I would suggest that the reimbursement under the guarantee is not taxable income as long as it is less than the cost of the solar panels.
Also, you also said the excess is "stored", it's impossible to store electricity unless you have your own battery system. If you produce excess, it might feed back to the public utility and create a credit on your bill. As I said before, this is probably taxable income, although it may often skip being reported. But this is not the same as a payment under the guarantee. Let me try and explain once more.
Suppose when the system is working correctly, you might generate $100 of electricity per month. In April and May, you use $80 of electricity, but you make $100 worth, so you build up a $40 credit. In June, July and August, you need $200 worth per month and make $100 worth, so you pull $100 per month off the grid. The public utility charges you for $300 minus the $40 credit you accumulated for a net bill of $260. Technically the $40 is also taxable income. It's not a discount, it's a credit you created by selling a product to the public utility.
Now suppose the system breaks down and produces no electricity for June, July or August. You have to take the entire $200 per month from the grid. You pay $560 instead of $600 since you have a $40 credit from April and May in my example. The amount of the credit is still taxable income since it's from the sale of electricity to the public utility. Then, because Freedom Forever has guaranteed you will produce $100 of electricity per month, they owe you $300 under the guarantee. In my opinion, this is not taxable income, because it is a make-good on the guarantee and pays you for actual economic damages, and does not represent the sale of electricity to anyone.
This all assumes your agreement works as I suggested and that you paid more to the public utility because your system was not producing power. If your system was producing power and you took less power from the public grid, then I don't know why your bill would be high, there may be some more complicated relationship between you and Freedom Forever that I can't evaluate, making my explanation incorrect.
If you get a 1099-MISC, we can tell you how to offset that in Turbotax so you won't pay tax. You don't include specific details with your tax return. The IRS might send you a letter later, asking for more details, so you will want to keep good records of any emails and discussions with the company, plus a copy of your contract and the guarantee. It would probably be best to post back here in January or February once you start to work in Turbotax for specific instructions on how to create the income offset, since the program might change how it should be entered.
This is not tax advice, and if the amount is large, you may want to hire an accountant to give you a professional opinion.
