Today, many people are inclined to believe that income from solar renewable energy credits (“SRECs”) is not taxable because (1) the IRS does not have any publication or rule related to income received from the sale of SRECs and (2) the IRS has said that the sale of SRECs does not fit within the transaction types that would initiate the generation of a 1099 form.
However, one should consider that the underlying presumption of SREC income not being taxable is: SREC income is not “profit” – or at least SREC income is not profit for the vast majority of system owners who use SREC income to pay back the initial costs of investment. (In the majority of states where Sol Systems operates, the average system payback takes 4-8 years, although it can be shorter or longer depending on state incentives and SREC values).
What happens when the solar energy system is paid off? When the system is paid off, there is a chance that SREC income would be considered profit. In that case, the IRS may decide to tax SREC income and systems owners would need to disclose that source of revenue.
Taxing SREC income would be detrimental to the solar industry and for that reason, it is very important for solar installers to educate their customers on this matter. It would also be prudent for solar energy system owners to talk with a tax professional about their solar energy investment.
Please note that Sol Systems is not an official tax advisor and cannot give tax advice. We recommend that prospective and current system owners consult a tax accountant regarding their individual financial situations.
Sol Systems will continue to research this topic and inform our customers and partners as we become aware of any changes.