No 1099-MISC from city for solar panel installation rebate

Mar 13, 2013 3 Replies
J

We installed solar panels on our roof last year. We received after-the-fact rebates from both the state and the city; the amount of the city rebate was $2,640. It was our understanding that both rebates were taxable. We received a 1099-MISC from the state, but none from the city.



I contacted the city to find out why not, and I received the following response: "The City of Boston doesn't send out 1099s for grants including both solar and energy efficiency programs."



This raises a whole raft of questions about which I'm hoping the experts here might have some insight:


  • Are 1099's optional under the law, i.e., is it up to the city to decide whether to issue them?


  • Does the answer to the previous question depend on whether the amounts paid are taxable?

  • Under what circumstances would a solar panel installation rebate paid by the city be non-taxable?


  • Is the issuance of a 1099 ipso facto proof that the payment it documents is taxable?

  • If the city is required by law to issue such 1099's, then what's the best way to bring its failure to do so to the attention of the IRS in a way that might actually cause it to take action?

Thanks.


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A

  1. The city is obligated to issue a 1099 when the payment is taxable.
  2. The City of Boston rebate is not taxable because the funding came from the Energy Efficiency and Conservation Block Grant, which was awarded through the American Recovery and Reinvestment Act (ARRA) of
2009. Buried in Sec 1104 of that Act is an exemption from taxation, but you have to reduce the cost basis of your home.

??(3) TREATMENT OF GRANTS.?Any such grant shall? ??(A) not be includible in the gross income of the taxpayer, but ??(B) shall be taken into account in determining the basis of the property to which such grant relates, except that the basis of such property shall be reduced under section 50(c) in the same manner as a credit allowed under subsection (a).??.

Now... when you look at Section 50 of the Internal Revenue Code, it says that for an energy credit, you only use 50% of the amount to reduce your cost basis. Therefore, I conclude that you must reduce the cost basis of your home by $1320, half of the rebate you received.

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J

If the solar installation rebate I got from the City of Boston is not considered taxable income on my federal taxes, does that mean that it's also not considered taxable income on my state taxes?

You wrote tyat I am only required to reduce my cost basis by

50% of the rebate amount. That is very useful information, since I had assumed that I was required to subtract the entire rebase from my cost basis.

I had made the same assumption about the Commonwealth Solar II rebate I received from the state. Perhaps I was incorrect about that as well. Do you know if I am required to reduce my cost basis by some or all of the Commonwealth Solar II rebate?

Assuming that I am, in fact, required to do that, do I have to reduce my cost basis by the total amount of the rebase, even though I lost part of the rebate to taxes?

For example, let's say the rebate I got from the state was $10,000. Which of these is correct?

  • I don't have to reduce the cost basis of my house at all based on that rebate.

  • I have to reduce the cost basis of my house by some fixed percentage of the rebate, as specified by some law (like for the rebate I got from the city).

  • I have to reduce the cost basis by the total amount of the rebate.

  • I have to reduce the cost basis by the total amount of the rebate, less any income taxes I paid on it.

Thanks for your previous advice and for any other advice you can give.

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A

Hopefully, the following answers all questions:

The rebate from the state is taxable income on your federal return and does not require an adjustment in basis. It goes on Line 21 of the 1040.

The rebate from the city is not taxable on your federal return and does require an adjustment in basis to the tune of 50%.

While I have no citations, I seriously doubt that MA would want to tax the city rebate. However, one would have to research the definition of

5.25% income for Line 4 of Schedule X, other income. Possibly, some tax pro from MA will see this and reply.
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