There are a variety of federal and state solar incentives available including tax credits, rebates, grants, and accelerated depreciation. These incentives depend on your entity and location.
Federal Solar Incentives
Federal Tax Credit: 30% in 2019
30% of the total out of pocket system cost (gross system cost minus utility rebates) will be credited on your federal taxes. If you don’t use all of your credit in the first year, it will roll over.
- Business/Commercial Cap: None
- Residential Cap: None
- Carry Back: 1 Year
- Carry Forward: 20 Years
Residential/Commercial Solar System Example:
$100,000 * .30 = $30,000 Tax Credit
Federal Tax Credit Funding is Sunsetting Beginning in 2020
Tax Credit VS Deduction
A Tax Credit is BETTER THAN a deduction. A Tax Credit means that if you owe $3500 and have a $3000 tax credit available, then you will now only owe $500.
A Tax Credit does NOT mean you will get a check. For example, if you owe $2,500 but have a $,3000 credit, you will not have to pay anything but you will not receive a check. The remaining $500 will roll over and be able to be used in future years. (20 years federal/10 years state).
MACRS Depreciation For Solar Arrays
MACRS Depreciation is a tool allowing your business to deduct 85% of the cost of a new solar array over a five year period. This deduction helps reduce your total tax liability (saving you on your tax bill) and can significantly reduce your payback period.
Certain solar equipment, such as those installed by Iowa, is eligible for a cost recovery period of five years. The amount of the array that you will be able to deduct is found by reducing the appreciable basis by half of the current available Investment Tax Credit (ITC). Currently, the ITC is 30%, so the total appreciable basis must be reduced by 15% percent. This leaves 85% that can be deducted over a five year period.
In general terms, depreciation refers to the loss of value over a set period of time for an object you purchase for your business (for a specific use). Because this is a business expense, you are able to deduct this lost value from your taxable income, provided the object was used for your business.
The MACRS Depreciation is NOT a tax credit, as it will directly decrease the amount of income that is taxed rather than a decrease in the amount of tax you have to pay. However, a lower tax liability will usually mean a lower amount of owed taxes. MACRS Depreciation can be used in conjunction with applicable tax credits.
There is currently a bonus depreciation that allows you to depreciate a larger percentage in the solar array’s first year of service. The remaining percentage will be depreciated under the normal MACR’s schedule. The bonus depreciation is only available for a certain amount of time.
Array Installed in 2018 – 40% Bonus Depreciation
Array Installed in 2019 – 30% Bonus Depreciation
MACRS Depreciation, alongside available tax credits and other financial incentives, can significantly reduce the payback period of your solar array. We often see payback periods of 2 and a half to five years, which leaves decades of free power for the array owners.
State Specific Solar Incentives
Illinois Adjustable Block Program / Illinois Shines
The Illinois Adjustable Block Program (commonly called Illinois Shines) is an Illinois specific program that pays you CASH for the solar that you install for your home or business. You’ll be placed in a specific ‘block’ based on the amount of power your array can produce and your payment will be based on which block you qualify for.
To qualify for the Illinois Adjustable Block Program, you will need to work with an Illinois solar company or Illinois solar installer that has been approved by the Program.
Learn more by watching our webinar here.
Iowa Solar Tax Credit
The State of Iowa allots $5 million annually in tax credits to support the adoption of solar in the state. The Iowa solar tax credit is worth 15% of the total system cost, but will begin to sunset alongside the Federal Tax Credit beginning in 2020.
This tax incentive for solar is credited in the form of a tax credit on your state of Iowa income taxes. If you don’t use all of your Iowa solar tax credit in the first year, it will roll over.
- Business/Commercial Cap: $20,000
- Residential Cap: $5,000
- Carry Back: 1 Year
- Carry Forward: 20 Years
Commercial Solar System Example:
$100,000 * .15 = $15,000 Tax Credit
Residential Solar System Example:
$50,000 * .15 = $5,000 Tax Credit (CAPPED)
Wisconsin 'Focus on Energy'
Focus on Energy is a state-funded organization that partners with select Wisconsin utilities to encourage renewable energy generation and reduce use of fossil fuels. Current utilities partnered with Focus on Energy are WE Energy, Alliant Energy, and Madison Gas and Electric.
Renewable Energy Competitive Incentive Program (RECIP)
This program provides a payout for renewable energy systems installed at Wisconsin businesses. Eligible businesses must apply via a Request for Proposals (RFP) process. This RFP will occur three times per year over the next four years (2019-2022).
While the total payment percentage will depend on the specifics of the solar array, this payment should amount for 10-20% of the cost of the system. Simpleray will provide a free quote to show you have much you could save, and help you apply for this incentive!
Prescriptive Renewable Incentives
The Wisconsin Focus on Energy program offers non-RECIP incentives of up to $4,000 for installing a solar array. This incentive is for commercial properties and cannot be used alongside the RECIP incentive.
Note: While we do our best to keep this page updated, we can’t promise that every program listed will apply to your exact situation or will be available should you decide to install solar. A Simpleray Renewable Energy Consultant will be able to provide details on everything you may qualify for. Contact us to see how much you could save!