Key Takeaways
- MACRS allows commercial solar owners to depreciate system costs over 5 years using an accelerated schedule
- Bonus depreciation can enable 60-100% of the depreciable basis to be written off in Year 1
- The depreciable basis is reduced by half the ITC amount — a $100K system with a 30% ITC has an $85,000 depreciable basis
- At a 21% corporate tax rate, MACRS can deliver $17,850 in total tax savings on a $100K system
- Bonus depreciation is phasing down: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% from 2027
- Only taxpaying entities benefit — nonprofits, municipalities, and tax-exempt organizations cannot use MACRS directly
What Is MACRS Depreciation for Solar?
MACRS (Modified Accelerated Cost Recovery System) is a federal tax depreciation method that allows businesses to recover the cost of a solar energy system over a 5-year period. Unlike straight-line depreciation, which spreads deductions evenly, MACRS front-loads the deductions — meaning larger write-offs in the early years of system ownership.
Solar PV systems are classified as 5-year property under MACRS (IRS Asset Class 48.14). This classification applies to both rooftop and ground-mount installations used for commercial, industrial, or income-producing purposes.
MACRS depreciation, combined with the Investment Tax Credit, can offset 50-60% of a commercial solar system’s cost through tax benefits alone. For businesses with sufficient tax liability, this makes solar one of the most tax-advantaged capital investments available.
Types of MACRS Depreciation for Solar
5-Year MACRS
The standard depreciation schedule for solar energy property. Deductions are spread across Years 1 through 6 using the 200% declining balance method, with a switch to straight-line when it yields a larger deduction. This is the baseline federal benefit available to all commercial solar installations.
Bonus Depreciation
An additional first-year deduction that allows businesses to write off a percentage of the depreciable basis immediately. At 100% bonus depreciation (available through 2022), the entire depreciable basis could be claimed in Year 1. Now phasing down by 20% per year through 2026.
Depreciable Basis Calculation
The depreciable basis is not the full system cost. It must be reduced by 50% of the ITC claimed. For a $100,000 system with a 30% ITC, the depreciable basis is $100,000 x (1 - 0.5 x 0.30) = $85,000. Failing to apply this reduction can trigger IRS recapture penalties.
State Depreciation Differences
Not all states conform to federal MACRS rules. Some states decouple from bonus depreciation, require straight-line depreciation, or offer their own accelerated schedules. California, for example, does not allow bonus depreciation. Always verify state-level rules before modeling project financials.
5-Year MACRS Depreciation Schedule
The following table shows the standard MACRS depreciation schedule applied to an $85,000 depreciable basis (based on a $100,000 system with a 30% ITC). Tax savings assume a 21% federal corporate tax rate.
| Year | MACRS Rate | Depreciation Amount | Tax Savings (21%) | Cumulative Savings |
|---|---|---|---|---|
| 1 | 20.00% | $17,000 | $3,570 | $3,570 |
| 2 | 32.00% | $27,200 | $5,712 | $9,282 |
| 3 | 19.20% | $16,320 | $3,427 | $12,709 |
| 4 | 11.52% | $9,792 | $2,056 | $14,765 |
| 5 | 11.52% | $9,792 | $2,056 | $16,821 |
| 6 | 5.76% | $4,896 | $1,028 | $17,849 |
| Total | 100% | $85,000 | $17,849 | — |
Note that the schedule spans 6 tax years even though solar is classified as 5-year property. This is because MACRS uses a half-year convention — the system is treated as placed in service at the midpoint of Year 1, so the final half-year of depreciation falls into Year 6.
Depreciable Basis = System Cost × (1 − 0.5 × ITC Rate)Example: A $100,000 solar installation claiming a 30% ITC:
Depreciable Basis = $100,000 x (1 - 0.5 x 0.30) = $100,000 x 0.85 = $85,000
The $85,000 figure is then depreciated using the MACRS percentages shown in the table above. The 30% ITC itself provides a separate $30,000 tax credit, so the combined federal tax benefit is $30,000 (ITC) + $17,849 (MACRS) = $47,849 on a $100,000 system.
Bonus Depreciation Phasedown Schedule
The Tax Cuts and Jobs Act of 2017 established 100% bonus depreciation for assets placed in service between September 27, 2017 and December 31, 2022. Beginning in 2023, the bonus percentage decreases by 20 percentage points per year. Congress may extend or modify this schedule, but as of early 2026, no extension has been enacted.
| Year Placed in Service | Bonus Depreciation % | First-Year Write-Off ($85K basis) |
|---|---|---|
| 2022 and earlier | 100% | $85,000 |
| 2023 | 80% | $68,000 |
| 2024 | 60% | $51,000 |
| 2025 | 40% | $34,000 |
| 2026 | 20% | $17,000 |
| 2027 and later | 0% | $0 (standard MACRS only) |
With bonus depreciation, the portion not claimed as bonus follows the regular 5-year MACRS schedule. For example, a system placed in service in 2025 with 40% bonus depreciation would claim $34,000 in Year 1 as bonus, and the remaining $51,000 would be depreciated over the standard 5-year MACRS schedule.
Practical Guidance
MACRS depreciation requires careful coordination between solar professionals, accountants, and business owners. Here’s role-specific guidance:
- Include MACRS in financial models. When using solar design software to generate proposals, make sure the financial analysis accounts for MACRS depreciation. Without it, the ROI presentation understates the true return for commercial customers.
- Verify the ITC rate before calculating basis. The ITC percentage affects the depreciable basis. A 30% ITC reduces the basis by 15%, while a 10% ITC reduces it by only 5%. The generation and financial tool in SurgePV handles this calculation automatically.
- Model the current bonus depreciation rate. A system designed in 2025 but not installed until 2026 receives the 2026 bonus rate (20%), not the 2025 rate (40%). Placed-in-service date matters.
- Separate land costs from system costs. Land is not depreciable. For ground-mount systems, only the solar equipment and installation costs qualify for MACRS — not land acquisition or lease costs.
- Present after-tax economics. Commercial customers evaluate investments on an after-tax basis. A proposal showing pre-tax costs without MACRS and ITC benefits will appear less competitive than financing alternatives.
- Coordinate with the customer’s CPA. MACRS benefits depend on the entity’s tax situation. Pass-through entities (LLCs, S-Corps) allocate depreciation to individual owners, which complicates the analysis.
- Flag the bonus depreciation phasedown. If a deal is in late-stage negotiation, the declining bonus percentage creates urgency. Moving from 2025 to 2026 placement reduces the first-year bonus from 40% to 20%.
- Use accurate proposal tools. Solar design software with built-in financial modeling, like SurgePV, can auto-calculate MACRS schedules and present year-by-year after-tax cash flows in customer-facing proposals.
- Confirm you have sufficient tax liability. MACRS deductions reduce taxable income. If your business has little or no taxable income, you cannot use the deductions in that year. Excess depreciation can typically be carried forward, but the time-value benefit is reduced.
- Understand entity structure implications. C-Corps claim depreciation directly. For partnerships and S-Corps, depreciation flows through to individual partners or shareholders based on ownership percentage.
- Keep IRS Form 4562 records. Depreciation is claimed on IRS Form 4562 (Depreciation and Amortization). Maintain documentation of system cost, placed-in-service date, and ITC amount for audit purposes.
- Evaluate tax equity partnerships. If your organization is tax-exempt (nonprofit, government), you cannot use MACRS directly. Tax equity structures — such as sale-leasebacks or partnership flips — allow a tax equity investor to claim the depreciation benefits on your behalf.
Model MACRS and ITC Benefits in Your Solar Proposals
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Who Can Claim MACRS on Solar?
Not every solar system owner qualifies for MACRS depreciation. Eligibility depends on the ownership structure and tax status of the entity:
| Entity Type | MACRS Eligible? | Notes |
|---|---|---|
| C-Corporation | Yes | Claims depreciation directly against corporate income |
| S-Corporation | Yes | Depreciation passes through to shareholders |
| LLC (taxed as partnership) | Yes | Depreciation allocated to members per operating agreement |
| Sole Proprietor | Yes | Claimed on Schedule C of personal return |
| Nonprofit | No | Tax-exempt — no taxable income to offset |
| Municipality / Government | No | Tax-exempt — may use tax equity structures instead |
| Residential Homeowner | No | MACRS applies to business property only |
For tax-exempt organizations that cannot use MACRS, third-party ownership models (PPAs or leases) allow a taxable investor to claim the depreciation and pass the savings through as a lower electricity rate. This is common for schools, hospitals, and government buildings.
Sources & Further Reading
- IRS Publication 946 — How to Depreciate Property
- NREL — Solar Technology Cost Analysis
- SEIA — Depreciation of Solar Energy Property (MACRS)
- DSIRE — Database of State Incentives for Renewables & Efficiency
Frequently Asked Questions
Can residential solar owners claim MACRS depreciation?
No. MACRS depreciation is only available for solar systems used in a trade or business or for income-producing purposes. Residential homeowners installing solar on their primary residence can claim the federal Residential Clean Energy Credit (Section 25D), but not MACRS. However, if you use part of your home for business (home office) or install solar on a rental property, a portion of the system may qualify for MACRS — consult a tax professional for specifics.
How does MACRS interact with the Investment Tax Credit (ITC)?
You can claim both the ITC and MACRS on the same solar installation, but the depreciable basis must be reduced by half of the ITC amount. For example, if you claim a 30% ITC on a $100,000 system ($30,000 credit), your depreciable basis is reduced by $15,000, resulting in an $85,000 basis for MACRS. The combined benefit — $30,000 ITC plus approximately $17,850 in MACRS tax savings — totals nearly $48,000 on a $100,000 system at a 21% tax rate.
What happens to MACRS if I sell the solar system before 5 years?
If you sell or dispose of the solar system before the end of the 5-year MACRS recovery period, you may face depreciation recapture. The IRS requires you to report the gain on sale, which can include recaptured depreciation taxed as ordinary income (up to the amount of depreciation previously claimed). Additionally, if the system is sold within the first 5 years, a portion of the ITC may also be subject to recapture. Consult a tax advisor before selling a solar asset within the recovery period.
About the Contributors
Co-Founder · SurgePV
Akash Hirpara is Co-Founder of SurgePV and at Heaven Green Energy Limited, managing finances for a company with 1+ GW in delivered solar projects. With 12+ years in renewable energy finance and strategic planning, he has structured $100M+ in solar project financing and improved EBITDA margins from 12% to 18%.
Content Head · SurgePV
Rainer Neumann is Content Head at SurgePV and a solar PV engineer with 10+ years of experience designing commercial and utility-scale systems across Europe and MENA. He has delivered 500+ installations, tested 15+ solar design software platforms firsthand, and specialises in shading analysis, string sizing, and international electrical code compliance.