Tax implications of solar

As far as I can tell, there has not been any change to the tax rules (federal and CA). You are not a business so NO Schedule C. The amount you netted is taxable Other Income (1040 Schedule 1 Line 8).

I'm not sure I agree. The production of excess electricity is an ongoing activity. By selling the excess electricity for more than the cost to produce it, you have established that there is a profit motive. It doesn't need to be your primary (or even significant) source of income to be a business.

Ira Smilovitz, EA Leonia, NJ

Schedule E?

Does this mean that if one pays for an owns the solar panels (instead of the lease in this case), that depreciation of the solar installation would apply?

If so, this would presumably need to be pro-rated between the personal use of the electricity versus the amount sold back into the grid? Any other issues related to depreciation and personal use?

I guess you could calculate which portion of the solar panels were used to generate electricity that got sold back, and then deduct $5 per square foot of the panels. :-)

Schedule C. You're not renting space, you are producing a product (electricity) for sale.

Ira Smilovitz, EA Leonia, NJ

If the panels were owned outright, I would calculate the depreciation on the basis of percentage of electrical output used personally vs. that sold to the utility company - an approach similar to business use of a car.

Ira Smilovitz, EA Leonia, NJ

He has a "solar lease". What does that mean? Is Tesla leasing his roof space? If so, that would be Schedule E.

If he is leasing from Tesla the equipment placed on his roof, then Schedule C sounds right.

In either event, how does the math work, given he is receiving a benefit from his consumption of electricity?

Does he pay Tesla the same amount he receives from the utility for the electricity generated which goes out on the grid? If so, the net is zero. If not, then what? I wouldn't be surprised if he pays Tesla more than he gets paid for that portion of the electricity that goes out on the grid, so he has a Schedule C loss?

Upthread, the OP said that he pays Tesla a fee for every KwH of electricity he generates. To the extent that he uses the electricity, it's just non-deductible utility expense. When he sells excess electricty to the utility company, the amount he pays Tesla for those KwHs is offset by the revenue received. The net is business profit or loss.

Ira Smilovitz, EA Leonia, NJ

Yes, I saw what OP said upthread.

Do people with solar really report this on their taxes? Hard to believe.

What is required and what is done are often different. I can only address what is correct.

Ira Smilovitz, EA Leonia, NJ

According to Taxed and Spent snipped-for-privacy@nonospam.com:

I don't think there are a lot of people in this situation. I believe that refundable solar credits are unique to California.

I'm in New York where I have remote net metering, in which I conceptually rent part of a solar farm nearby and the power it generates is credited to my electric bill, same deal as though the solar cells were on my roof. When it generates more power than I use (most of the summer) the credit is carried forward but is not refundable.

I would imagine that large power companies would send 1099s when they pay for power they receive from users.

Thanks to everyone who responded, and to Ira especially.

Though SoCal Edison had told me that they'd be cutting a check for the hefty negative balance, it turns out that was not true. They get you coming and going. The _actual_ check I'll get from them will be at 2.7 cents a kWh, not the 23 cents they charge for the power I generate.

This puts the payment to me for unused solar electricity in the $300- $400 range, versus about $2000 paid to Tesla over the same period. (I use roughly 10% of the generated power. I can't imagine what persuaded the previous owners to put in the solar panels. None of the appliances in the house run on electricity; they're all propane.)

So if this is a Schedule C business, it's going to show a loss every year, to the tune of $1500 or so. I wouldn't mind reducing my taxable income in that way, but can I really do that? I thought a Schedule C business couldn't just keep showing losses indefinitely.

I'm not familiar with the rules, but I'd think they should pay you at least what their cost is to generate other electricity that they have.

If your intent is to make a profit, then in theory it's OK even if you seldom if ever make a profit. But if you know with a high degree of certainty that you're never going to make a profit, then it's a hobby, and you can't deduct more than what you get.

Yes, it can, as long as there is a profit motive and it is not merely a hobby.

Something doesn't seem right. Using the information you've provided, you're paying a net of $1600 for electricity ($2000 paid to Tesla less $400 received). Based on your estimate of $400 received at $.027/kWh sold, you have sold somewhat less than 15000 kWh. If you use 10% of the generated electricity, you're using ~1600 kWh. If you bought the electricity directly, it would cost you 1600*.23 = <$400. It seems to me that you should cancel your contract and have Tesla remove the solar cells.

Ira Smilovitz, EA Leonia, NJ

I know of a dog breeder that has consistently lost high 5 figures each year and has survived several IRS audits. Not showing a profit shifts the burden to the taxpayer to prove a profit motive.

Ira Smilovitz, EA Leonia, NJ