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Turf rebate recipients will have to decide how to report funds on federal taxes

Southern Californians who received cash rebates for replacing their lawns with drought-tolerant landscaping will soon get a federal tax form in the mail reporting the amount, but water officials said Thursday it is still not clear whether the reimbursement will be taxable.

Officials from the Metropolitan Water District of Southern California -- which funded a $340-million incentive program -- say they are sending 1099 forms to turf rebate recipients of $600 or more and leaving reporting up to participants and their tax advisers.

"We're doing what we believe is our obligation, which is sending the 1099s," said Deven Upadhyay, an MWD manager. Recipients "would have to work with their own tax advisor in terms of the way that they might characterize it in terms of the way they file their own taxes."

This would affect most of those who received rebates, Upadhyay said, though he did not give an exact number. The average residential rebate totals about $3,000, according to MWD data. In some cases, residents received rebates of more than $70,000.

MWD spokesman Bob Muir said the agency believes the rebates should be "tax-free."

California provides a tax exemption for turf removal rebates, but the federal tax code provides an exemption only for rebates related to energy efficiency, officials said.

"As of this point, it's kind of an unfortunate gray area in terms of tax code," Upadhyay said.

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FOR THE RECORD

Jan. 22, 10:37 a.m.: A earlier version of this article stated that the state Franchise Tax Board is awaiting clarification from the IRS as to whether the exemption also applies to turf rebates. The board is no longer seeking clarification, as board officials say state law excludes the turf rebates.

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The MWD is working with a coalition of other organizations, including conservation groups and tax associations, to amend tax code through legislation, "so we are not alone in this effort," Muir said.

Recipients of $600 or more in rebates were asked to provide their tax identification numbers. MWD officials are also mailing and emailing customers who have already received their rebate checks and asking them to send in signed W-9 forms.

Twitter: @taygoldenstein

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