When Governor Jerry Brown announced mandatory water reductions in April, the Metropolitan Water District grass removal program shifted into to overdrive. $340 million dollars was allotted for rebates, and thousands of Angelenos ripped out their lawns in exchange for some cold hard cash. But don't go buying a new boat with that rebate money yet, drought-friendly folks. The IRS might be asking for a piece of it. The LA Times is reporting that the MWD has no idea whether homeowners who were given "cash for grass" will be taxed by the federal government for the rebate.
The turf removal rebate terms state, "The Internal Revenue Service requires Rebate Program participants receiving $600 or more in rebates to receive an IRS Form 1099 unless exemptions apply." California does provides that tax exemption on grass removal rebates, but it turns out the federal tax exemption is only for rebates related to energy efficiency, not water efficiency.
The state Franchise Tax Board is working with the the IRS to clarify the confusion, but MWD is already taking steps in preparation for the rebates to be taxed. Customers who have already received rebates have been asked to provide tax identification numbers online. 1099 tax forms are being prepared, but according to WMD manager Deven Upadhyay, the agency has "not made a decision" on whether to send them out.
Upadhyay sounded coy about the potential tax burden on customers when talking to the LA Times. "We're only a few weeks into this, so who knows if this becomes an issue or not," Upadhyay said, "We're certainly not in a position to be providing tax advice." Tax advice, no, but a definitive answer of whether customers owe taxes on their rebates would be nice.
The rebate program proved to be so popular this year, the MWD tripled the budget of the program in May. Since December 2014, $340 million had been set aside for the rebates, but it was already gone by July. Over 24,000 homeowners received rebates of $600 or more. The average residential rebate was about $3,000, but some homeowners received more than $70,000.
That $70,000 could have a hefty price tag on it if taxed. Or as Deven Upadhyay puts it, "if it is something they're going to report on their taxes, the larger the amount, the more potential tax liability they would have." Hey, thanks for the tax advice, Deven. —Jeff Wattenhofer