I’m considering solar for my home. Some states, including mine, have SRECs, or Solar Renewable Energy Credits which you can sell for a number of years depending on how much your system generates.
But one large national solar company buys all your SRECs up front for a listed fee, and then they sell them over time. Of course they buy them for a fraction of the face price. But they’re paying you up front and they argue they’re taking on the risk of price fluctuations, change in the law reduce or eliminate them.
The fact that this appears to be mandatory and not optional I think says enough about how good of a price they’re offering but regardless their system pricing is pretty good.
Anyway, on to the tax question… The math on their website shows this SREC being subtracted from the system cost and therefore reducing the tax credit. For instance, if you pay $20K for the system and they buy your SRECs for $5K, they calculate you getting the tax credit of 30% on the $15K net or $4500.
But I would think their website is wrong… that the SYSTEM cost is still $20K and should get the $6K tax credit (30% of $20K, not $15K). And then the SREC buy-out is a separate side deal.
I’ve reviewed form 5695 for this credit and it does not address it directly. It does define “Qualified Solar electric property cost” as “ Costs for property that uses solar energy to generate electricity for use in your home located in the United States” which again to me sounds like it would be the gross cost of the “property”, NOT net of an SREC purchase.
There’s a separate topic on whether SRECs are taxable income (I get different answers). But even if so, the 30% solar credit would exceed the marginal tax rate on that equivalent income so there’s still something of a benefit.
Does anyone know if this is in line with IRS guidance? Or if there is none, is this a reasonable interpretation?