MACRS Depreciation of Solar Panels
How The Federal & MACRS Tax Credits Work Together (Updated for 2025)
STEP 1: Federal Investment Tax Credit
The Federal Investment Tax Credit (FITC) remains at 30% through 2032 for solar PV systems. So for Mike’s $100,000 investment in 2025, he can still subtract $30,000 immediately from his business’s tax liability. Green Ridge SolarCommercial Solar Guy
STEP 2: Depreciable Basis
When claiming the FITC for a business, the depreciable basis is reduced by half of the tax credit percentage. With a 30% FITC, the depreciable basis would be 85% of the total cost (100% – (30% × 0.5)). For Mike’s $100,000 system, the depreciable basis is $85,000. StraightUp SolarCommercial Solar GuyForecast Solar
STEP 3: Bonus Depreciation for 2025
In 2025, the bonus depreciation percentage is 40% (down from 60% in 2024). This is a significant change from the original information. To calculate the bonus depreciation amount for Mike’s solar PV system in 2025, multiply the depreciable basis by 40%: $85,000 × 0.40 = $34,000. Green Ridge SolarParadisesolarenergy
Note that bonus depreciation will continue to decrease by 20% annually until it reaches 0% in 2027, after which businesses will only use the standard 5-year MACRS depreciation schedule. 8MSolarParadisesolarenergy
STEP 4: MACRS Depreciation for Remaining Basis
After applying the 40% bonus depreciation, the remaining 60% of the depreciable basis ($51,000) will follow the standard 5-year MACRS schedule. Assuming a five-year recovery period, a half-year convention, and a 200% declining balance method, the depreciation rate for Year 1 is 20% as per IRS Publication 946 Table A-1. ParadisesolarenergyEnergy
To calculate the accelerated depreciation for the first year, take the difference between the original depreciable basis and the amount claimed for bonus depreciation, then multiply by the 20% depreciation rate: $51,000 × 0.20 = $10,200. Energy
STEP 5: Total First-Year Tax Impact
Assuming Widgets, Inc. has a federal tax rate of 21%, the net tax impact of the depreciation deductions (bonus plus MACRS) for the first year would be: 0.21 × ($34,000 + $10,200) = $9,282. Energy
When combined with the FITC of $30,000, the total first-year tax benefit is $39,282, representing about 39.3% of the initial investment.
For subsequent years (2026-2030), the business will continue to claim accelerated depreciation deductions on the remaining basis following the MACRS schedule, but bonus depreciation will no longer apply to this initial investment. Paradisesolarenergy
With just federal incentives, Mike’s effective cost for the solar PV system has been reduced by approximately 39.3% in the first year alone, with additional tax benefits continuing over the next four years. This calculation doesn’t include potential energy savings or any available state and utility incentives.
Note: This explanation is for informational purposes only. It’s recommended to consult with a tax professional to understand how solar tax credits and incentives apply to your specific situation.
