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Solar MACRS Depreciation Calculator

Enter system cost, ITC percentage, bonus depreciation, and your tax bracket — get the full year-by-year MACRS schedule and effective cost after all incentives.

System & tax details
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Tax incentive summary
Total tax benefit: $157,663 — Effective cost: $92,338
ITC (30% total)$75,000
Depreciable basis (cost − 50% ITC)$212,500
Total depreciation tax savings$82,662
Effective $/W after all incentives$0.92/W
Year-by-Year MACRS Schedule
YearDepr AmountFed SavingsState SavingsTotal Savings
Year 1$76,500$26,775$4,590$29,758
Year 2$54,400$19,040$3,264$21,162
Year 3$32,640$11,424$1,958$12,697
Year 4$19,584$6,854$1,175$7,618
Year 5$19,584$6,854$1,175$7,618
Year 6$9,792$3,427$588$3,809
Total$212,500$74,375$12,750$82,662
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How to Use This Calculator

Enter system cost and ITC percentage

Start with the total installed system cost — this is the full contract price before any incentives. Select the base ITC rate (30% for standard projects meeting prevailing wage requirements) and check the adder boxes if applicable. The Energy Community adder (+10%) applies if your project is located in a census tract where a coal mine, coal power plant, or oil/gas facility has closed. The Domestic Content adder (+10%) requires that steel, iron, and at least 40% of manufactured components are US-made.

Set your tax rates and bonus depreciation

Enter your federal marginal income tax bracket and state income tax rate. For 2026, bonus depreciation is 20% — this means 20% of the depreciable basis can be expensed immediately in year 1, and the remaining 80% follows the standard 5-year MACRS schedule. Bonus depreciation was 40% in 2025 and will be 0% starting in 2027 (unless Congress extends it).

Read the MACRS schedule

The year-by-year table shows depreciation amounts and the resulting federal and state tax savings for each year. Year 1 combines bonus depreciation with the first-year MACRS rate. The calculator shows the effective system cost after combining the ITC and all depreciation tax savings — essential for comparing true project economics.

The Formula

Total ITC % = Base ITC (30%) + Energy Community adder (0 or 10%) + Domestic Content adder (0 or 10%) ITC Amount = System Cost × Total ITC % Depreciable Basis = System Cost − (ITC Amount × 50%) [IRS basis reduction rule] Year 1 Depr = Depreciable Basis × Bonus % + Remaining Basis × 20% (MACRS Yr 1 rate) Years 2-6 Depr = Remaining Basis × MACRS Rate (32%, 19.2%, 11.52%, 11.52%, 5.76%) Annual Tax Savings = Depreciation Amount × (Federal Rate + State Rate × (1 − Federal Rate)) Total Tax Benefit = ITC Amount + Sum of All Annual Depreciation Tax Savings Effective Cost = System Cost − Total Tax Benefit

The 50% ITC basis reduction is an IRS rule: because the ITC is a dollar-for-dollar tax credit, the IRS requires you to reduce the depreciable basis by 50% of the ITC amount (not 100%). This means you can't double-dip on both the full ITC and full depreciation deductions. For a $250,000 system at 30% ITC: ITC = $75,000; depreciable basis = $250,000 − ($75,000 × 50%) = $212,500.

Example

Meridian Manufacturing — 200kW commercial system, 2026

Meridian Manufacturing installs a 200kW rooftop solar system in 2026 at a total cost of $250,000. They qualify for the standard 30% ITC and have a 35% federal tax bracket and 6% state rate. Bonus depreciation in 2026 is 20%.

System cost$250,000
ITC (30%)$75,000
Depreciable basis$250,000 − $37,500 = $212,500
Tax rates35% federal + 6% state
Bonus depreciation20% in 2026

Result

Year 1 depreciation~$84,625 (bonus + MACRS)
Year 1 tax savings~$34,756
Total depreciation savings (6yr)~$85,510
Total tax benefit (ITC + depr)~$160,510
Effective system cost~$89,490
Effective $/W~$0.45/W after incentives

Federal incentives reduce Meridian's $250,000 investment to roughly $89,490 in effective cost — a 64% reduction. The ITC provides an immediate $75,000 credit against taxes owed, while MACRS depreciation provides another $85,510 in tax savings over 6 years. This dramatically improves project IRR and shortens payback to under 3 years.

FAQ

MACRS (Modified Accelerated Cost Recovery System) is the IRS depreciation method for business assets. Solar energy property is classified as 5-year MACRS property, meaning you can deduct the system's cost over 6 tax years using a front-loaded schedule: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76% (the extra year comes from the half-year convention). These are deductions against business income — different from the ITC (Investment Tax Credit), which is a direct dollar-for-dollar tax credit. Both MACRS and ITC can be claimed on the same system, subject to the 50% basis reduction rule.
When you claim the federal Investment Tax Credit (ITC), the IRS requires you to reduce your depreciable basis by 50% of the ITC amount. This prevents "double-dipping" on both the full ITC and full cost depreciation. For a $100,000 system at 30% ITC: ITC = $30,000; basis reduction = $15,000 (50% of ITC); depreciable basis = $85,000 (not the full $100,000). Without this rule, taxpayers would get both a $30,000 credit AND deductions on the full $100,000. The rule was established in 1985 and applies to all ITC-eligible property.
Bonus depreciation (also called "first-year expensing") allows businesses to immediately deduct a percentage of an asset's depreciable basis in the year it's placed in service. The Tax Cuts and Jobs Act set 100% bonus depreciation from 2017-2022. The phase-down schedule: 2023: 80%, 2024: 60%, 2025: 40%, 2026: 20%, 2027: 0%. After taking bonus depreciation, the remaining basis is depreciated on the standard MACRS 5-year schedule. Congress has discussed extending or restoring bonus depreciation, so check for legislative updates if planning a 2027+ project.
The Inflation Reduction Act added two ITC bonus adders that increase the credit above the base 30%: Energy Community adder (+10%): for projects in census tracts that include or adjoin a closed coal mine/plant, or where fossil fuel employment exceeds 0.17% of local employment. Check eligibility at the DOE's energy communities mapping tool. Domestic Content adder (+10%): requires that all steel and iron components are US-produced, and at least 40% (increasing to 55%) of manufactured products by cost are US-made. Combined, both adders can bring the ITC to 50%. Projects in low-income communities may also qualify for an additional 10-20% adder.
Yes — a business can claim both the ITC and MACRS depreciation on the same solar system. This is one of the most powerful combinations in the US tax code. The ITC provides an immediate credit against taxes owed (not just a deduction). MACRS provides deductions that reduce taxable income over 6 years. The only adjustment is the 50% basis reduction: your depreciable basis is reduced by 50% of the ITC amount. For a $1M system at 30% ITC: ITC = $300,000 direct credit, plus depreciation deductions on $850,000 depreciable basis yielding another $330,000-400,000 in tax savings (depending on rate and bonus depreciation).

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