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San Diego Residents Find Turf Rebates Are Taxable

Photo caption: The lawn of Allied Gardens resident Joey Davis, who replaced his grass this s...

Photo by Nicholas McVicker

The lawn of Allied Gardens resident Joey Davis, who replaced his grass this summer, August 13, 2015.

Some San Diegans who got money from the San Diego County Water Authority for taking out their grass last year are now startled to find they owe taxes on those turf rebates.

Some San Diegans who got money from the San Diego County Water Authority for taking out their grass last year are now startled to find they owe taxes on those turf rebates.

And some homeowners only received those notifications a few weeks ago, after they had already filed their taxes.

One of them is Allied Gardens resident Joey Davis.

"So we had to do an amendment," he said.

Davis said he didn't know the rebate would be taxable.

"There's a lot of things you do on their website to get the rebate. There's a lot of things you have to go through, so I would have definitely noticed something like that and scaled down my project a little bit," he said.

A water authority spokesman pointed out the website does say under its terms and conditions that “Rebates may be considered taxable income."

"Any applicable taxes are the sole responsibility of the Participant," the website says. "Participants are encouraged to seek advice from their own tax professionals regarding any potential tax liability that may arise from participation in the Program."

The clarification is on a different web page than where residents signed up for the rebates, which are no longer available.

Only the 468 people who got more than $600 in rebates were issued 1099 forms, water authority spokesman Mike Lee said.

Whether residents would be taxed on the rebates was a murky issue when the program started. The Metropolitan Water District, which supplies water to the San Diego County Water Authority, posted on its website that rebates are not taxable in California, but "the U.S. tax code is not clear on whether water conservation rebates are considered taxable federal income."

"Metropolitan has determined that we must issue 1099-MISC forms to those who received a rebate of $600 or more in 2015," the website said. "If you have not done so already, we request that you submit a federal W-9 form to SoCal Water$mart for this purpose. Recipients can consult with their tax adviser regarding the rebate."

The San Diego County Water Authority is supporting legislation in Congress to make turf rebates exempt from federal taxes.

Turf rebates from the city of San Diego are not taxable, a city spokesman said.

As for Davis, he said while he's frustrated by the bureaucracy, he's still glad he took out his lawn and would go through the rebate process again.

"Had I known this up front, I probably wouldn't have changed much in my design," he said. He said the taxes he now has to pay are $100 to $200.

Some San Diego residents received grants as large as $70,000, so their tax bills may be a lot higher.

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