In recent years, solar has become a cost-effective energy solution for many businesses. Finance options, tax incentives, and state rebates are available to assist in paying for solar installation. To facilitate more significant investment in renewable energy and 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 recoup depreciation costs faster than a straight-line recovery method. The basis of the program allows investors to deduct more from their depreciation earlier. Therefore they have a higher return on investment in later years. Instead of depreciating this investment over the life expectancy of the solar panels, you instead 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 for five years. Over this cost recovery period, property owners can deduct 85% to 100% of the cost of their system from their income taxes. By claiming this depreciation, businesses pay off their solar installs sooner. Meaning they save money on electricity for extended periods.
Consider this example. Your business purchases a system worth $100,000. If installed in 2021, there is a 26% federal tax credit. Then, you can take 85% ($85,000) from your tax liability for five years! Your electricity bill is now reduced because you are generating solar power.
For the first five years of using solar, you can claim $85,000 less taxable revenue because of the MACRS system. You can then put that money 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 spent 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 going solar. The opportunity to advertise your company as a “green, eco-friendly” business carries significant weight as we globally shift to renewable 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!