The following is a piece of advice that comes to us from one of our customers, Michael from Maryland. You can find out more about his adventures in solar at www.solarpvhome.com.
Here are my thoughts on the SRECs and taxable income topic. ANY INCOME YOU RECEIVE IS TAXABLE whether if it is from selling items on EBay or selling SRECs. However, if it does not lead to a PROFIT then how can it be reported.
Key Point – To sell SRECs I had to install a Solar PV setup and that cost me money. My initial cost to sell those SRECs was my total cost of the PV installation less the federal and state incentives. So the proceeds from my SRECs is offset by the cost of the Solar PV system. Therefore, one should not have to declare the proceeds until the total cost of the system has been reached.
For example – my PV system cost me $14320 after federal and state grants.
I received $720 for SRECs in 2009 = my cost is reduced to $13600. If I get $1200 for SRECs in 2010 = my cost is further reduced to $12400. It is not until my total cost is zero that my SRECs will give me a profit. Keep in mind, I am selling my SRECs to recoup my initial investment in solar not to initially profit from selling SRECs. That is how I am going to proceed.
Another way to look at it is that my $14320 investment needs to be depreciated over time. If a Tax expert purchases a computer for $3000 and the useful life is 3 years – it is depreciation over the three years. So if the Tax expert makes $1000 in profit the first year – that is offset by the $1000 computer cost using simple depreciation. Depending upon how you want to depreciate the Solar PV setup 5 Years, 10 Years or useful Life of 25 Years, that depreciation cost would offset my SRECs proceeds.
Moreover, it is just like when I sell items on EBay. I deduct the cost of the item, EBay/PayPal fees, shipping, and packaging from the sale price and then what is left is the PROFIT or “other income” on my 1040 that I report on my taxes.
If one keeps good records – as to the total cost of the PV system and SRECs received – it should be clear to the IRS that a PROFIT was not made until the system’s cost was totally paid off.
– Michael from Maryland
Check out Michael’s personal website at www.solarpvhome.com. It covers his family’s move toward “Going Green and Saving Green”.