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As drought-stricken California continues to encourage residents to replace their turf with drought-tolerant landscapes, local water agencies throughout the state are incentivizing those residents with rebates. Some water rebate programs are funded to the tune of millions of dollars, resulting in sizable “cash for grass” rebates for conservation-minded participants.
For many people, letting their natural turf grass die can seem like a good alternative to worrying about ever-increasing municipal guidelines on when to water the lawn. Plus, it can be an easy way to pocket extra money through water savings. But now, residents who took the plunge into turf removal for the promise of a rebate may be in for a rude awakening.
The Metropolitan Water District, which serves six Southern California counties and is the largest supplier of treated water in the United States, announced it would begin preparing 1099 forms for everyone who received $600 or more in turf removal incentives for the 2015 tax year. That means that for the thousands of residents who were enticed by the $540 million the district poured into the program, those $2 per square foot rebates may be a tax liability in 2016.
Will Turf Removal Rebates be Taxed?
Although the Los Angeles Times reports that the district has still not officially stated it will mail the 1099 forms – and, that district officials remain “unsure” whether Californians who received rebates will have to pay taxes on that money – the district has reportedly been prepared to comply with the IRS on taxing the rebates all along. “There’s always been language in the agreements when people sign up about a potential tax liability,” Metropolitan Water District spokesman Bob Muir told reporters. “So it was clearly stated in the application process.”
The language Muir is referring to is in the following terms: “The Internal Revenue Service requires Rebate Program participants receiving $600 or more in rebates to receive an IRS Form 1099 unless exemptions apply.” That’s right, exemptions. For Californians who abided by the rules of when to water the lawn as dictated by the state – and, went the extra mile by replacing their turf with drought-tolerant plants – it may be possible to apply for exemptions and avoid being taxed on turf removal rebates.
But while California provides an exemption, federal tax exemption is another story. Federal tax rebates are only for home improvements related to energy efficiency – water efficiency is not included. “Unfortunately we’re still waiting for clarity on this issue,” Muir said. “The state Franchise Tax Board has approached the IRS to see if we can get a clarification whether the exemption on rebates applies in California.”
A Better Alternative to Turf Removal
Keeping these complications in mind, it would seem that turf removal incentives are not always the best way to go. Remember, many municipalities offer rebate programs that are much easier to participate in; for example, programs that reward residents for simple water conservation. These programs enable people to take advantage of modest rebates under the taxable threshold, while keeping the lawns they love. Whether or not they choose to comply with their municipality’s guidelines on when to water the lawn, individuals can achieve significant water savings by using smart irrigation technology that applies water more efficiently – when and where it’s needed; that way, they can enjoy their lawns while avoiding federal taxes on their conservation efforts.
How can people find these rebate programs? The Toro Company, a worldwide provider of irrigation systems and products, has information on water rebate programs in 14 different states, including California. The full list can be found at watersmart.toro.com/rebates/.
