Legislative Update: The Iowa solar tax credit was not renewed in this past legislative session, marking the end of the state’s incentive program for solar. There are still funds available for commercial solar projects which are completed and placed into service by December 31st, 2021. If you’re thinking about going solar, we urge you to move fast to take advantage of the remaining credits.
The Iowa state tax credit is expiring
The state of Iowa originally set aside a 1.5 million dollar yearly pool in 2012 which solar customers could pull from to claim their Iowa solar tax credit. Each year since, that pool has been fully used up and the program was subsequently expanded to the $5 million cap where it will remain through the end of 2021. The set-aside for residential solar tax credits has already exceeded its max, so the remaining tax credits may only be used by commercial customers.
The growth of solar in Iowa has far exceeded projections from the Iowa Department of Revenue. Between the years of 2021 and 2020, $36.6 million in Iowa solar tax incentives spurred private investment into 6,213 solar projects costing a combined $291 million, according to the Iowa Solar Energy Trade Association.
What ROI can commercial solar projects earn?
When the Iowa state tax credit is coupled with the federal investment tax credit (ITC) of 26%, a commercial solar installation typically pays for itself in 3-5 years with an Internal Rate of Return (IRR) of up to 34%. As a low-risk investment, solar is an excellent way for Iowa businesses to reduce operating expenses while making a positive environmental impact.
Download our 2021 guide to solar tax incentives
How does the Iowa solar tax credit work?
The Iowa Solar tax credit is very similar to federal solar ITC (investment tax credit) but claimed via a different route. After your system is installed, you file an online application with the Iowa Department of Revenue’s tax credit claiming system to redeem your credit, which you can then use when filing your regular taxes. Commercial customers can claim a state credit of 50% of the federal credit but not to exceed $20,000. While not technically a rebate, the Iowa Solar Tax Credit, along with the federal ITC, help solar customers reduce their overall tax liability.
That said, the state and federal governments consider each other’s tax credit as income and will be taxed accordingly. While our solar proposals are investment-grade with thorough financial projections and a 25-year cash flow analysis, we always encourage every customer to run our proposal by their own tax accountant so they can fit our numbers into their specific tax situations.
Why go solar right now?
When the cap is hit in 2021, commercial customers who started their installation too late in the year may not be awarded the Iowa solar tax credit. With solar exponential growth in solar installations projected in Iowa, we’d highly recommend getting your solar installation rolling now. Sometimes the process can take a few months to get approval by your utility company and be operational. Don’t risk missing out on the Iowa solar tax credit. Sign up for Ideal Energy’s free consultation today.