IRS prescribes income tax treatment for energy rebates

The IRS has issued guidance (A-2024-19) providing that rebates for energy-efficient improvements under two Department of Energy (DOE) programs will generally not be included in income unless they are paid directly to business taxpayers in connection with the sale of goods or the provision of services.

The Inflation Reduction Act created two new rebate programs to encourage home energy-efficiency improvements. The Home Efficiency Rebate program provides rebates for whole-home energy retrofits that meet certain energy savings thresholds, while the Home Electrification and Appliance Rebate program provides point-of-sale rebates for purchases and installation of Energy Star appliances and building materials. The DOE allocates the funding through state and tribal governments, which will administer the programs and pay the rebates.

The IRS guidance provides that taxpayers receiving rebates for purchases of subsidized products do not need to include the rebates in income but must reduce their basis in the property by the amount of the rebate. The purchasers also must reduce their basis in the rebate for purposes of claiming the Section 25C tax credit, if it is available. Section 25C provides a tax credit for individuals to purchases energy-efficient home property such as heat pumps, water heaters, windows, doors and insulation. State and local governments paying the rebates will generally not need to report payments to purchasers of over $600 on Form 1099.

The programs also provide for vendors and service providers to collect the rebate themselves directly in some circumstances, and the IRS guidance provides that rebates paid to these businesses should be included in the business income. State and tribal governments should also report them on Form 1099.