Can I depreciate solar panels for tax purposes?

Yes — businesses and commercial properties can depreciate solar panels using MACRS (Modified Accelerated Cost Recovery System) over 5 years. This gives you front-loaded deductions in years 1–5, with 60% of the depreciable basis written off in just the first two years. Combined with the 30% federal ITC, the total tax benefit can offset 50–60% of system cost.

What is the MACRS depreciation schedule for solar?

MACRS 5-year solar depreciation percentages: Year 1: 20%, Year 2: 32%, Year 3: 19.2%, Year 4: 11.52%, Year 5: 11.52%, Year 6: 5.76%. Note: the depreciable basis is reduced by 50% of the ITC claimed (so if you take the 30% ITC on a $100,000 system, the depreciable basis is $85,000, not $100,000).

Can residential homeowners depreciate solar panels?

Generally no — MACRS depreciation is for business-use property. Residential homeowners get the 30% federal tax credit (ITC) but cannot depreciate the system. If you run a home-based business and can allocate a portion of solar to business use, that portion may be depreciable. Consult a tax professional for home-office situations.

Does bonus depreciation apply to solar in 2026?

As of 2026, bonus depreciation (Section 168(k)) has stepped down from 100% to 40% for property placed in service in 2025, then 20% in 2026. This means businesses can take 20% of the depreciable basis as an immediate deduction in year 1, on top of regular MACRS. The remaining basis follows standard MACRS rates. Consult a tax advisor for your specific situation.

Solar Depreciation Calculator

MACRS 5-year depreciation for commercial solar. Enter system cost and tax rate — get your year-by-year deduction schedule and total tax savings.

Commercial solar system

System cost?

Federal tax rate?

Bonus depreciation %?

ITC rate?

MACRS depreciation tax benefits

$42,138 Year 1 tax benefit

Investment Tax Credit (ITC)$30,000

Depreciable basis (after ITC adj.)$85,000

Total depreciation deductions$85,000

Total depreciation tax benefit$17,851

Net cost after all tax benefits$52,149 (52% of gross)

Year-by-year MACRS schedule

Year	Bonus Dep.	MACRS Dep.	Total Dep.	Tax Benefit
Year 1	$51,000	$6,800	$57,800	$12,138
Year 2	—	$10,880	$10,880	$2,285
Year 3	—	$6,528	$6,528	$1,371
Year 4	—	$3,917	$3,917	$823
Year 5	—	$3,917	$3,917	$823
Year 6	—	$1,958	$1,958	$411
Total	—	—	$85,000	$17,851

Disclaimer: This calculator provides estimates for educational purposes. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional or CPA before making tax decisions.

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How to Use This Calculator

This calculator is for commercial solar only

MACRS (Modified Accelerated Cost Recovery System) depreciation is a federal tax benefit for businesses that own commercial solar systems. Residential homeowners cannot depreciate their solar systems — they use the residential ITC (30%) instead. Eligible entities: C-corps, S-corps, LLCs, partnerships, and sole proprietors who own a solar system used in a trade or business.

System cost

Enter the total installed cost including equipment, installation, electrical work, permitting, and interconnection. Do not subtract the ITC from the cost basis — the IRS requires that you reduce the depreciable basis by 50% of the ITC amount (not the full ITC). The calculator handles this automatically.

Bonus depreciation

Bonus depreciation allows you to deduct a large portion of the cost in Year 1 instead of spreading it over 6 years. The rate has been phasing down after the 2017 Tax Cuts and Jobs Act: 100% (2017-2022), 80% (2023), 60% (2024), 40% (2025), 20% (2026). Consult a CPA to confirm the current rate and your eligibility.

The Formula

ITC amount = System cost × ITC rate (30%) Depreciable basis = System cost - (ITC × 0.5) [IRS rule: reduce basis by 50% of ITC claimed] Bonus depreciation (Year 1): Bonus amount = Depreciable basis × Bonus rate Remaining basis = Depreciable basis × (1 - Bonus rate) MACRS 5-year schedule on remaining basis: Year 1: 20.00% | Year 2: 32.00% | Year 3: 19.20% Year 4: 11.52% | Year 5: 11.52% | Year 6: 5.76% Tax benefit per year = Total depreciation × Tax rate Net cost = System cost - ITC - Total depreciation tax benefits

Solar equipment qualifies as 5-year MACRS property under IRS Publication 946. The half-year convention spreads Year 1 deductions across 6 tax years. Bonus depreciation is applied first in Year 1, then regular MACRS applies to the remaining basis.

Example: $500,000 Commercial Rooftop

Small business with 500kW rooftop solar, 21% corporate tax rate

C-corp installs a $500,000 commercial solar system in 2024. 60% bonus depreciation, 30% ITC, 21% tax rate.

System cost$500,000

ITC (30%)$150,000

Depreciable basis$425,000 (reduced by $75,000)

Year-by-year result

Year 1 (60% bonus + MACRS)$340,000 deduction → $71,400 tax savings

Years 2-6 (MACRS on remainder)$85,000 deductions → $17,850 tax savings

Total depreciation tax benefit$89,250

Year 1 total (ITC + depr.)$221,400

Net cost after all benefits$260,750 (52% of gross)

The business receives $150,000 in ITC and $89,250 in depreciation tax benefits — a total of $239,250 in federal tax benefits on a $500,000 system, reducing the effective cost to $260,750. State depreciation benefits may provide additional savings.

FAQ

Can I take both the ITC and MACRS depreciation? ▼

Yes — commercial solar owners can claim both the 30% Investment Tax Credit AND MACRS depreciation. However, you must reduce the depreciable basis by 50% of the ITC claimed. So for a $1M system with a $300,000 ITC, the depreciable basis is $1M - $150,000 = $850,000. This "ITC basis reduction" prevents a double benefit but still allows substantial depreciation deductions on top of the full ITC.

What is the ITC basis reduction rule? ▼

Under IRC Section 50(c), when you claim the Investment Tax Credit, you must reduce the property's depreciable basis by 50% of the ITC amount (not 100%). For a $1M system with 30% ITC ($300,000): basis reduction = $300,000 × 50% = $150,000. Depreciable basis = $1M - $150,000 = $850,000. This means you're depreciating $850,000 while keeping the full $300,000 ITC. The net effect is still highly favorable.

What is bonus depreciation and when does it expire? ▼

Bonus depreciation allows you to deduct a large percentage of eligible property costs in the first year rather than depreciating over 5-7 years. For solar: 100% bonus (2017-2022), 80% (2023), 60% (2024), 40% (2025), 20% (2026), 0% (2027+) under current law. Congress may extend or modify these dates. Act before 2027 to capture meaningful bonus depreciation. For 2026 with 20% bonus: you can still front-load $200,000 in deductions on a $1M system's depreciable basis.

Do I need to own the system to depreciate it? ▼

Yes — you must own the solar system to claim depreciation and the commercial ITC. If you lease the system (from a third-party owner/PPA), the leasing company takes the tax benefits, not you. For businesses, purchasing the system outright or with a solar loan is usually more tax-efficient than a PPA or lease if you have sufficient tax appetite to use the ITC and depreciation deductions.