SREC tax Fed & Massachusetts

[Vic99]

What is the name of your state (only U.S. law)? Massachusetts

On the roof top of my primary (and only) residence I have a 6.3 megawatt (MW) grid tied solar electric system (PV) that I own outright. I did not take out a loan to purchase this system. My residence is not used as a business. This PV system generates electricity for my home. Excess electricity gets pumped into the electric grid. When I need power and can't generate enough, like at night, I get my electricity from the grid like everyone else.

Every time I make 1 MW of power, an SREC (solar renewable energy certificate) gets minted. MA has a program where power companies here have to produce at least X % of their energy from renewable resources. If they don't they have to get SRECs until they fulfill their quota. I have a broker that sells them for me and I pay a flat fee of $15 for each SREC sold. Since my system is new, I have only sold 1 SREC so far and netted ~$221 for it. I am in the program for 10 years and the price of SRECs is in flux.

Do I have to pay federal and/or state taxes on this money? If so, how? As income, as a business, etc? Any extra forms that I would have to fill out?

Part of me says that since being in the SREC program for 10 years is one of the incentives to get people to go solar, it doesn't make sense to tax an incentive. The other part of me says, it's not that simple.

Many thanks.

 

[FlyingRon]

It's not (Federally) a business unless you have a business motive which you do NOT have.

This appears to be a federal interpretation that directly applies to what you are asking. Sale of the RECs is taxable income. Your net metering is not as long as it runs in the power companies favor over the year.

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

 

[Vic99]

I do not generate income from net metering. National Grid issues me a credit. They told me over the phone that they will not cut me a check . . . I asked. They do charge me $4/month for the privilege of being connected. Currently they have credited me ~$300.

Granted I'm saving money on electricity, but I still haven't reached my break even point for the solar installation and probably won't until ~8 years in. I bought a system that is bigger than I currently need so that I can still have growth at my home. Also, the efficiency of the system degrades by ~1%/year, until stabilizing in about 20, so I tried to factor that in as well.

Are you telling me that I have to pay taxes on a credit that I may never use?