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I installed a photovoltaic solar panel system on my house in the summer of 2015. (It's not a lease arrangement or the like; I own the solar panels outright.) As part of the government incentives for deployment of solar power, I receive a quarterly payment due to the sale of Solar Renewable Energy Credits (SREC), which is administrated by a company called "SRECTrade". The first payment was deposited to my account in April 2016.

I had assumed that these payments were somewhat-normal taxable investment income of some sort (simply because most payments are), but hadn't dug into the details. Today I received an email from SRECTrade which states:

As tax season approaches, we'd like to remind our clients that SRECTrade, Inc. does not issue tax statements. This is due to the lack of a defined tax code regarding SRECs in the markets that we service. We recommend that our clients report their income by using the transactions statements found in their accounts on SRECTrade.com (in the Transactions tab). If there are any outstanding questions, it would be best to consult a tax professional.

I find it rather bizarre that there wouldn't be a defined policy for how to treat these payments, as while it's a market based system the market was largely defined by the government and they usually tend to be pretty clear whether income is taxable or not.

So, is income from sold SRECs taxable for United States and/or Massachusetts purposes, and if so how does one report it?

Research I've done

  • The Commonwealth of Massachusetts pages on SRECs seem to focus mainly on the details of how they are generated, and also look to have a technical audience dealing with large-scale usage of the program, as opposed to the 4 credits I generated this year totaling approx $1000.
  • A comment on Turbotax's site refers to a CPA's site that says that it should be included in income, but not the specifics of how, and also says that IRS guidance isn't clear.
  • A search of the IRS's site for SREC doesn't give any results, and more generic searches for "solar" and the like give information on the direct federal solar tax credits available for installing systems (which I am in fact getting), but not on the taxability of these other specific incentive payments.
  • I've done general Internet searches, but it seems to just be pretty murky and nobody wants to make a specific claim for fear of getting it wrong.

I'm inclined to just throw it in the "Other income" line of the tax forms, but I wanted to see if there was more recent specific guidance or rulings that I was missing.

3 Answers3

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As you say, SRECTrade, a company which brokers these, just sent out their yearly statement saying that they don't know either and thus do not issue a tax statement, leaving it entirely up to us.

Consensus is that you can certainly report SREC sales as Ordinary Income and be safe. Most of us aren't selling enough credits that it's worth investigating whether there's a slightly better option, and I've heard no claims that there is a option that would significantly change the numbers.

In the continued absence of an officially blessed answer, it still comes down to "the object of the game is to be as honest as the law allows."

keshlam
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I have also read that SREC payments are not taxable until the homeowners basis is exceeded by the payments. For example, one spends $100,000 on solar panels and gets a 30% Renewable Energy Credit. That would be a $30,000 credit on his/her taxes. It may be realized in the initial year or carried forward each year until it is all used up, depending on the homeowners tax liability. However, based on the basis argument, the homeowner would not be taxed on SREC payment until such payments exceeded $70,000 (in my example). I do not know if this applies to federal or state (MD for me) as my readings did not reveal that information. This makes sense to me and I am inclined to go with it. If the SRECs are taxable, some have suggested that the solar panel can be depreciated but personal property cannot be depreciated. Again, I like the basis argument. Any other ideas or suggestions are appreciated. Thanks.

Jim
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The IRS issued a private letter ruling in 2010 indicating that they thought the SREC payment received by a taxpayer was taxable income. The taxpayer's state was redacted, but in that state, the way it worked was that he sold all future SRECs to his utility in exchange for a one time, up front payment. (The ruling was in the taxpayer's favor, because if the SREC wasn't taxable income, it would have been considered a subsidy of the system price, lowering his basis and thus his federal solar investment tax credit. Presumably his tax bracket was lower than 30%.)

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

Brief analysis: http://www.rodmancpa.com/are-solar-renewable-energy-credits-taxable

stannius
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