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Illinois Solar Incentives and Tax Credits
Illinois solar incentives and federal tax credits cover about 60% of the purchase price of solar.
Illinois Solar Incentives in 2020
Illinois has a law requiring its utilities to source 25% of their energy from renewable sources by 2025. The law requires a significant portion of that energy come from residential solar. To achieve this goal, Illinois’s largest utilities must make incentive payments to homeowners who invest in solar. These payments are on top of a longstanding federal solar tax credit (which we explain later on this page).
Introducing Illinois SRECs
The Illinois solar incentive payments utilities make are technically payments for Solar Renewable Energy Credits (or “SRECs”, which is pronounced “ess-wrecks“) your system will generate.
One Illinois SREC represents the renewable attributes of one megawatt-hour of electricity generated by a solar system. Utilities such as ComEd must purchase these SRECs from you on terms dictated by the Illinois Power Agency, a unit of State of Illinois. For most residential systems, they must pay for 15 years of estimated SREC production in advance, when you first install your system.
How Much are SRECs Worth?
The Illinois Power Agency sets the prices for Illinois SRECs. The price is currently $72.97 per SREC for most residential systems.
The number of SRECs a home solar system will produce over 15 years depends the size of the system (measured in kilowatts), the position of the panels on the home relative to the sun (south-facing is best), shading, and a few other factors.
Here is an example of a fairly typical system:
|System size||= 8.4 kWdc|
|Est. production over 15 years||= 146 MWh|
|Est. SRECs produced||= 146 SRECs|
|Price per SREC||= $72.97|
|Total incentive||= $10,654|
Est. production over 15 years = 146 mWh
Est. SRECs produced = 146 SRECs
Price per SREC = $72.97
Total incentive = $10,654
(As stated above, for almost all residential systems this incentive is paid shortly after your system is installed. For very large residential systems these benefits may be paid over four years. See additional details here.
SREC Prices Will Decline Over Time
To ensure Illinois solar installers have an incentive to reduce costs, Illinois requires the prices of SRECs to decline as more solar systems are installed. While the Illinois Power Agency has estimated the initial SREC price at $72.97, this will only last for the first 5,000-10,000 systems. Once that block of systems has been installed, the price will decline. For each subsequent block of systems, the price will decline further. If you want the largest incentive, you should install your solar system now.
We’ll Do The Math and File your Application
You don’t have to do any of these estimates or calculations. When Certasun designs a solar system for you, we estimate the number of SRECs it will produce and their value. When you decide to move forward with an installation, we make a reservation with the state to ensure you get the payment you expect.
The best way to estimate the size of the incentive you can receive for your home is to consult with a residential solar expert like Certasun. Fill out the form below for a completely free, no-obligation consultation!
Federal Solar Tax Credit
In addition to the Illinois solar incentive, most homeowners can also benefit from a federal solar tax credit. Section 25D of the Internal Revenue Code provides for a tax credit equal to 26% of the cost of system installed in 2020:
(a) ALLOWANCE OF CREDIT In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of— (1) the applicable percentage of the qualified solar electric property expenditures made by the taxpayer during such year…
[non-relevant text removed for clarity]
(g) APPLICABLE PERCENTAGE For purposes of paragraphs (1) and (2) of subsection (a), the applicable percentage shall be—
(1) in the case of property placed in service after December 31, 2016, and before January 1, 2020, 30 percent,(2) in the case of property placed in service after December 31, 2019, and before January 1, 2021, 26 percent, and(3) in the case of property placed in service after December 31, 2020, and before January 1, 2022, 22 percent.
A credit is not the same as a deduction—it is much more valuable. A credit is a reduction in the amount of tax to be paid. A deduction is only a reduction in the amount of income on which tax is assessed.
Imagine a taxpayer who purchases a $20,000 solar system. The 26% federal tax credit is therefore worth $5,200. It is like the $20,000 solar system only cost $14,800.
As you can see from the quote above, the value of the federal incentives for home solar will decrease after 2020. Taxpayers acting now get the largest benefit.
Claiming the Solar Tax Credit
Unlike the Illinois solar incentives, which Certasun can and does apply for on your behalf, you must claim the federal incentives on your own tax return.
There is one additional form involved: Form 5695: Residential Energy Credits. On line 1 of this form you enter the cost of your solar system. In our example, this is $20,000. The video here shows how to fill this out. After filling out the rest of form 5695, you take the result to line 53 of Form 1040.
Residential solar tax credits and estimated taxes
If you are required to file quarterly estimated taxes, you can take advantage of the federal incentives almost immediately after installing your system. (If you are required to file estimated taxes, you already know who you are. If you don’t know what estimated taxes are, you can skip this section.) Estimated taxes are based on the amount of tax liability you expect to have for a given year. Let’s assume our taxpayer above is required to make estimated tax payments. Since our taxpayer would expect to owe $5,200 less in taxes than she otherwise would because of the tax credits, she could reduce her estimated payments by $1,300 each quarter.
Two tax credits?
There are actually two tax credits that apply to solar, although you can only benefit from one or the other. The Section 25D credit described above applies to homeowners who install solar on their own homes. The other solar tax credit is available to businesses that install solar equipment, whether or not it is on their place of business. It is defined in Sections 38 and 48 of the Code. If you lease your system, the lessor will use these business investment tax credits.
The inevitable disclaimer
You had to know this was coming, right? Certasun is not your tax preparer, accountant, or lawyer. We are not giving you individualized tax advice. You should consult your own advisors about your particular situation.
Let us Tell you More
Certasun would be more than happy to explain more about both the Illinois solar incentives and federal tax credits. Sign up for a completely free, no-obligation consultation. We will provide a quote for a system for your particular home, calculate the value of the incentives, and clearly explain your financing options. Fill out the form below or call us at (312) 638-0800!
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