Lawn Conversions Might Cost Homeowners Some Green During Tax Season

The IRS makes a distinction between energy and water conservation that affects taxpayers

Going green might cost some more green during tax season.

Uncle Sam wants his slice of rebates handed out for California lawns converted from grass to water friendly vegetation or gravel. The conversions were part of a plan to help the state conserve water during its historic drought.

But the IRS makes a distinction between energy and water conservation that affects taxpayers. Saving water is not considered as important to the IRS, so the agency taxes turf removal rebates as earned income.

That means homeowners like Jeff Willis, who converted his yard with multi-color rocks and succulents, and anyone else who received a rebate for turf removal in excess of $600 will receive tax form 1099 from the IRS.

"The gall of them to do that when we're in such a severe drought situation is just mind blowing," said Ellis, who paid $8,000 for the conversion, plus the costs for turf removal and replacement.

Devin Upadhyay, manager of the Municipal Water District, said water conservation rebates should be viewed as equal to energy conservation rebates, which are tax exempt. The agency is lobbying lawmakers to make the change.

"I do think it sends a mixed message and that's part of the reason we're trying to work to change that," said Upadhyay.

Upadhyay said advertisements for the rebate program also never mentioned that the rebates could be taxed. His agency makes it clear in approval forms that the money is subject to tax, he said.

The MWD and tax attorneys who spoke with the NBC4 I-Team both urged residents to declare the rebate on tax forms to avoid a dispute or audit. California lawmakers are working to make the rebates exempt form federal taxes with a promise that 2015 filings will be grandfathered in.

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