Incentives for Solar in IOWA

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)

DEPRECIATION

Depreciation is only applicable to commercial customers, not residential customers.
The system is depreciated on an accelerated schedule called MACRS and it is considered 5 year property. Each year, the business can deduct a percentage of the system cost (set by IRS), which decreases their amount of taxable income.

This is different than a tax credit because it is a decrease in the amount of income that is taxed, not a decrease in the amount of tax that you have to pay. If depreciation exceeds income, that net-operating loss can be carried back two years, and carried forward twenty years.

Depreciation on the MACRS schedule applies to both your federal and state tax liability

Example
We will assume the the gross out of pocket system cost is $100,000 and the business’ effective tax rate is 35%
Year Rate Income Deduction Tax Benefit
Tax Year of Install (Yr. 1) 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

NO SALES TAX

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.

5 YEAR PROPERTY TAX EXEMPTION

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.

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