Electric co-op "capital credits"

Not a nightmare... easy peasy.

Assuming you are deducting your cost of electricity against your rental income, you have a recovery in the year you receive the payment. In the year of payment, you would first net the payment received against any electricity charge for the year before taking a deduction. If the payment exceeds your charges for electricity in that year, the excess is treated as gross income.

The above assumes that you are a cash basis taxpayer.

OK, so I don't have to file amended returns. That's certainly good news. (I am a cash basis taxpayer, but my college accounting classes keep tripping me up -- BAD KNOWLEDGE!)

I'm looking at my 2013 Schedule E right now, and I'm trying to figure out where I would put the income in the excess case. It's obviously not a rent or royalty received; I wonder if just putting a negative number on line 17 (utilities) might not be the best way to go.

Alternatively ... Is is possible/legal to simply avoid the whole mess by not cashing any checks that they send me? It would sure be easier (and more "profitable," given that I actually value my time).

Thanks!

I don't know why you refer to this as "the whole mess". It's just a line entry like any other line entry on the Schedule E. If you don't like putting it on Line 3, use a negative number on Line 17, if that bothers you net it against your items on line 19 (Other). No one is going to question it.

And.... by the way, the form may call Line 3 Rents Received but it actually includes your income from rental activities. An excess recovery of a rental expense would be considered income from rental activity.

I think the likelihood that you would ever receive any such checks are slim indeed. In fact, you might have to die to get a sliver of your capital account returned to you.