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Do You Have to Pay Taxes on SRECs in Virginia?

Installing solar panels in Virginia can provide numerous advantages, from reducing or eliminating energy costs to fostering the growth of renewable sources of power. However, properly planning the financial aspects of a solar panel installation is a critical element that includes not only the cost of the panels and their installation, but also related fees and adjustments, such as taxes and credits.

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In Virginia, homeowners who install a solar array may generate SRECs, and these may impact an individual’s tax burden each year. Here is an overview of SRECs and how they work in Virginia, including whether to factor them into tax forms to avoid fees later.

What Are SRECs?

SRECs are solar renewable energy credits which are generated when a solar panel system creates renewable power. In Virginia, the SREC program, created through the Virginia Clean Economy Act, allows homeowners with solar panels to earn credits for every 1,000 kWh of solar energy produced. On average, a 10kW system can produce about 12 solar renewable energy credits every year.

These credits are traded on the SREC market to produce profit for homeowners who own panels and participate in the program. The going rate for an SREC fluctuates and can be between $30 to $60 depending on the market.

The 1,000 kW of energy produced by solar panels does not need to be in excess of a home’s usage in order to qualify; simply producing 1,000 kWh is sufficient to earn a renewable energy credit.

Do You Have to Pay Taxes on SRECs in Virginia?

There is no specific ruling or precedent from the IRS about whether SRECs are taxable. So the first advice we have about this issue is to contact your tax professional. Having said that, SREC broker SRECTrade has done a lot of research into the issue and you can read the details here.

The question revolves around whether money earned from energy credits is considered a profit. Because the sale of an SREC in Virginia is more about recouping the money spent on your solar system rather than profit, it’s unclear whether it’s considered taxable in the eyes of the IRS. There is one case you can view in which the IRS issued a written statement that a homeowner’s SRECs were taxable, but it also states at the bottom of the letter that this is an individual case, and does not set a precedent. So it appears that you may take a chance if you do not report the earnings, and you may eventually be hit with a payment in the future and associated late fees, but that is a choice only you can make.

How Will I Be Taxed on SRECs in Virginia?

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In general, the tax code states that any extra income earned over $600 should be reported. If you have earned more than $600 in SREC payments over the course of the year, you and your tax advisor may decide to report the earnings on IRS Form 1099-MISC.

Remember, we are solar experts, not tax experts! So please check with your tax advisor to confirm the correct steps for your unique tax situation.

Choose a Reputable Installer for Your Solar Panel Needs

Solar panels help homeowners achieve higher standards of green energy while reducing energy costs.

The Ipsun Solar team takes pride in being honest, transparent, and thorough when providing a quote. We will fully explain the considerations to keep in mind and create a tailored estimate that accurately represents how the panels will function over time- with no pressure. Contact us to learn more about SRECs or to schedule a consultation.

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