Iowa Solar Tax Credit: How to Apply and Claim
Learn how an Iowa solar installation can reduce your state tax bill. This guide clarifies the complete process for securing this valuable state incentive.
The Iowa Solar Energy System Tax Credit offered a financial benefit to taxpayers installing solar systems. While the program for new residential installations has expired, its structure is relevant for some taxpayers and for context on state-level energy policy. The state tax credit for new residential solar installations ended for systems placed in service after December 31, 2021, as its annual funding cap was reached early.
This led to a waitlist and the denial of many applications for residential systems installed in 2020 and 2021. Although some waitlisted business applicants were still eligible to receive credits, funding for new residential applicants was depleted before the program’s official expiration. Business installations must have commenced construction before January 1, 2022, to potentially qualify.
Eligibility for the Credit
To have qualified for the solar tax credit, the applicant must have been an Iowa resident or business that owned the solar energy system. The system had to be placed in service at a property located within Iowa. Leasing a system or entering into a power purchase agreement where the taxpayer does not own the equipment would make them ineligible for the credit.
The system itself had to be new and not previously used. The Iowa Department of Revenue required that the installation be fully complete before an application could be submitted. This meant the system needed to be operational and connected to the grid, a status often verified by a completion document from the local utility company. The credit applied to systems designed for solar electric or solar water heating purposes.
Calculating the Tax Credit Amount
The calculation of Iowa’s solar tax credit was directly linked to the federal Residential Clean Energy Credit. The state credit was equal to 50% of the federal credit claimed for the same system. The federal credit is still available, covering 30% of qualifying costs for systems installed from 2022 through 2032, before decreasing to 26% in 2033 and 22% in 2034.
There were established caps on the total credit amount a taxpayer could receive. For a residential installation, the lifetime maximum credit was $5,000 per distinct installation. For business installations, the cap was higher, set at $20,000 per system. The state also had an aggregate annual cap of $5 million for all solar tax credits awarded in a given year.
Qualifying costs included the price of solar panels, inverters, and other equipment. Labor costs for on-site preparation, assembly, and original installation were also includable, as was any sales tax paid on the equipment. Costs not directly related to the solar system, such as roof repairs or energy storage batteries, were not eligible. If the awarded credit exceeded the taxpayer’s tax liability in a single year, the excess amount could be carried forward for up to ten years.
Required Information and Forms for Application
To prepare a complete application, taxpayers needed to gather several specific documents. Having all documents scanned and ready for upload will streamline the submission process on the GovConnectIowa platform. The required documents include:
- A final, itemized invoice from the solar installer showing the total system cost.
- Proof of payment, such as canceled checks or credit card statements.
- An interconnection agreement or a “utility completion sheet” from the local utility, which confirms the system is operational.
- A copy of the federal Form 5695 for individuals or Form 3468 for businesses, which is used to calculate the underlying federal credit.
The application itself must be submitted electronically through the GovConnectIowa portal, as paper applications are no longer accepted. The process requires creating a logon for the portal and completing the Tax Credit Applicant Certification.
The Application and Claiming Process
After logging into the GovConnectIowa portal, the user navigates to the “I Want To…” tab and selects “Apply for a Tax Credit.” The system guides the user through entering information and uploading the required documents. For business applicants, the application must be received by May 1 of the year following the installation.
Once an application is submitted, it is reviewed by the Iowa Department of Revenue. For business installations still subject to the annual award limitation, the application may be approved, denied, or placed on a waitlist. Being on the waitlist does not guarantee a credit, as it is contingent upon the availability of funds within the state’s annual cap.
If the application is approved, the Department of Revenue issues a Tax Credit Certificate. This certificate is the official document that authorizes the claim and contains a unique certificate number. A taxpayer must have this certificate before they can claim the credit on their state tax return.
The final action is to claim the credit on the annual Iowa income tax return. The taxpayer must complete the IA 148 Tax Credits Schedule and attach it to their IA 1040 Individual Income Tax Return. On the IA 148, the taxpayer will enter the Solar Energy System Tax Credit using code 22 and provide the unique certificate number.