Incentives for Solar

FEDERAL TAX CREDIT: 30%

BUSINESS/COMMERCIAL CAP: NO CAP
CARRY BACK: 1 YEAR 1
RESIDENTIAL CAP: NO CAP
CARRY FORWARD: 20 YEARS
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.

Residential/Commercial Solar System Example:
$100,000 * .30 = $30,000 Tax Credit

IOWA STATE TAX CREDIT: 15%

BUSINESS/COMMERCIAL CAP: $20,000
CARRY BACK: NONE
RESIDENTIAL CAP: $5,000
CARRY FORWARD: 10 YEARS
15% of the total system cost will be credited in the form of a tax credit on your state of Iowa income taxes. If you don’t use all of your credit in the first year, it will roll over.

Commercial Solar System Example:
$100,000 * .15 = $15,000 Tax Credit

Residential Solar System Example:
$50,000 * .15 = $5,000 Tax Credit (CAPPED)

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.

 

BONUS DEPRECIATION

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.

Example

The below example assumes a $100,000 array and a 35% tax rate.

Year Depreciation % Deduction Amount Tax Benefit
Tax Year 1 (Year of Install) 20% $17,000 $5,950  
Tax Year 2 32% $27,200 $9,520  
 Tax Year 3 19.2% $16,320 $5,712  
Tax Year 4 11.5% $9,775 $3,421  
Tax Year 5 11.5% $9,775 $3,421
Tax Year 6 5.8% $4,930 $1,725
Totals 100% $85,000 $29,750
 
Total Depreciable Basis: (85%) = $85,000

 

NOTE: MACRS Depreciation is a complex system, and you should discuss your options with a certified accountant before making any final decision.

NO SALES TAX & 5 YEAR PROPERTY TAX EXEMPTION

There is NO SALES TAX on solar. This adds up to big savings when you figure up saving an additional 7% on the cost of the system by NOT paying any sales tax. Also, after installing solar panels, their property tax will NOT increase for 5 years. More specifically, the value added by installing solar panels will not be taxed.

ILLINOIS ADJUSTABLE BLOCK PROGRAM

The Adjustable Block Program 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.

Learn more by watching our webinar here.

Array 1 IRS Form 3800
2IRS Form 3468, Business Energy Investment Tax Credit
3Iowa Department of Revenue Tax Credit Users Manual, p.67-69
4IRS Publication 946
5IRS Publication 536
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