Accelerated Depreciation for Solar Systems to Lower Costs is one of a handful of incentives that make commercial solar appealing. By taking advantage of the Modified Accelerated Cost Recovery System (MACRS), solar system owners can reduce their immediate financial burden and lower their tax liability. MACRS is a special depreciation method that allows businesses to claim a larger portion of their depreciation in the first few years of an asset’s service, and it applies to most properties, including solar energy systems.
For instance, let’s say you purchase a solar system in 2023 that costs $225,000 and qualifies for the 30% solar investment tax credit and MACRS. To calculate your depreciation schedule, you’ll need to reduce the depreciable basis by half of the tax credit amount allowed, which means your depreciable basis is 85% of the total cost of the project (100% – [30%*.5]). Using this equation, you can determine the amount you can depreciate: Cost of solar energy system x .85 = Amount you can depreciate.
In our scenario where we’ve installed a $225,000 solar energy system, the amount you’ll use to calculate your depreciation schedule is $191,250 (225,000 x .85).
If your business’s federal tax bracket is 24% and your state tax bracket is 7%, you can multiply the solar system depreciation amount by your tax rates to calculate your tax savings. This means you can save $45,900 for federal taxes ($191,250 x .24) and $13,388 for state taxes ($191,250 x .07).
The total savings in this example is $59,288, which is equivalent to 26.36% of the price of your solar system.
Moreover, the Tax Cut and Jobs Act of 2017 sweetens the pot by declaring solar systems eligible for bonus depreciation. In 2023, you can claim 80% of the federal savings on your federal income taxes, and the state of Georgia maintains 100% bonus depreciation for the same year. All in all, accelerated depreciation and other incentives can significantly lower your solar installation’s cost and reduce your payback period.
Important to note that accelerated depreciation is one of several incentives to consider when installing commercial solar. Consult with your local solar expert to properly calculate the cumulative savings your business can achieve by installing solar.