FEDERAL TAX CREDIT: 30%
$100,000 * .30 = $30,000 Tax Credit
IOWA STATE TAX CREDIT: 15%
$100,000 * .15 = $15,000 Tax Credit
$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 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
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|
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.
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