In recent years, solar has become an incredibly cost-effective energy solution for many business owners. There are fantastic finance options, tax incentives, and state rebates available to help pay for a solar installation. To help facilitate greater investment in renewable energy, and help lower costs for consumers, MACRS can be applied to help businesses get the highest (and quickest) return on their solar investment.
What is MACRS?
MACRS (Modified Accelerated Cost Recovery System) is a cost recovery system designed to help recoup the depreciation costs faster than you would with a straight-line cost recovery method. The basis of the program allows investors to deduct more from their depreciation in earlier years and therefore have a higher return on investment in later years. Instead of depreciating this investment over the life expectancy of the solar panels, you take it over the next five years.
Real world examples
Here is a more simple explanation. Installing a solar system on a commercial property can be deducted from your taxable income over the next five years. Over this five-year cost recovery period, property owners can depreciate 85% to 100% of the total cost of their system from their federal income taxes. By claiming this depreciation, businesses can pay off their solar installs sooner, meaning that they will be saving money on electricity for a more extended period.
Consider this example. Your business purchases a system worth $100,000. If installed in 2021, there is a 26% federal tax credit. Then, you also can depreciate 85% ($85,000) over the next five years from your tax liability! Your electricity bill is now dramatically reduced because you are generating your own power with solar.
For the first five years of installing your solar system, you can essentially claim $85,000 less in taxable revenue because of the MACRS system. You can then take that money and put it towards your solar loan (or a place of your choice). By the end of the five years, you have paid off a significant percentage of your solar system. By paying off your solar loan faster, you can begin to pocket the money you would have been spending on electricity sooner. In essence, you will see your return on investment considerably earlier than if this depreciation didn’t exist.
is solar right for you?
MACRS has made switching to solar a no-brainer for commercial properties. Additionally, state rebates in certain states add to the appeal of switching to solar. The opportunity to advertise your company as a “green, eco-friendly” business carries significant weight as we globally shift to renewable/green energy sources. Still have questions? Talk to a solar expert today and see how much of your hard-earned money can go back into your pockets today!