MACRS and the ITC together reduce the price of a solar array by roughly 60% (depending on tax bracket). As such, a $500,000 solar array actually carries a net, after-tax price tag of just $200,000.
Under the federal Modified Accelerated Cost-Recovery System, businesses may recover portions of their investment in certain properties through accelerated depreciation deductions. MACRS allows for a 6-year depreciation for solar system investments, providing tax savings equal to approximately 30% of the system cost (depending on tax bracket). Under MACRS’ bonus depreciation provision—which was renewed by Congress in December 2015 under the Consolidated Appropriations Act—50% of the solar project’s investment expense can be depreciated in the tax year during which the system is placed in service, with the remaining 50% expense depreciated over the subsequent five tax years. While this does not increase total money returned, it does allow more money to come back to the system owner in the first year following installation, thus increasing the investment’s internal rate of return (IRR).
The Investment Tax Credit, or ITC, is a corporate tax credit for solar that is equal to 30% of total system expenditures. Eligible equipment includes panels, racking, inverters, cabling, and all services and expenses required for installation. It should be noted that this is a credit, not a deduction; system owners may simply reduce their tax burden by 30% of system cost. If a system owner does not have sufficient tax appetite for the ITC in the first year following installation, it may be “rolled forward” for a period of up to 20 years.
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