SOLAR GRIDS® BUSINESS TAX INCENTIVES

Did you know you can depreciate your Solar Grids® system?

Depreciation is a decline in an asset’s value over time, it used to recover the purchase cost as the equipment’s value degrades throughout its lifetime. Your business can expense depreciation on its taxes to get the most out of going solar, depreciation is one of the easiest ways you can keep installation costs down, ROI’s high, and paybacks short.

How do I depreciate my Solar Grids® system?

To depreciate your solar system the MACRS (Modified Accelerated Cost Recovery System) depreciation is used, which accelerates all your benefits to Year 1. Solar Grids® is not a tax or legal advisor however, and we recommend consulting your accountant before making any depreciation expense decisions.

Note: This depreciation is not for residential solar homeowners, unless it is considered a business expense.

How depreciation is calculated

With the new tax bill, “The Tax Cut and Jobs Act of 2017”, businesses can depreciate 100% of their solar system in the first year. This 100% bonus depreciation allows you to accelerate all the federal tax benefits to immediately help offset installation costs.

However, to figure out what can be depreciated, you must take 50% of the tax credit amount and deduct it from the depreciable basis. For example, right now in 2022 the tax credit is 30%, half of that would be 15%, which leaves you with 85%. The depreciable basis would then be 85% of the solar system cost. For example, if your solar system cost $100,000, you would be able to depreciate $85,000.

What are my federal & STATE savings?

Continuing the example from above, if your solar system was installed in 2022, your depreciable cost basis is $85,000. To calculate federal tax savings from depreciation, multiply the $85,000 by the federal tax rate. As an example, let’s use a 35% tax rate and multiply that by $85,000, that’s a total of $29,750 in tax savings in the first year that your solar system is placed into service.

To calculate state savings, multiply your depreciable cost basis of $85,000 by your state tax rate. As an example, let’s use a 5% tax rate and multiply that by $85,000, that equals out to a $4,250 spread over the 5-year MACRS schedule.

Your combined federal and state savings equal a total of $34,000 in depreciation savings. That’s almost 35% of the entire system’s cost, and you’ll get 90% of these total savings in year one!

What is the five-year MACRS schedule?

The modified accelerated cost recovery system (MACRS) is a depreciation system used for tax purposes in the U.S. MACRS depreciation allows the capitalized cost of an asset to be recovered over a specified period via annual deductions.

With 100% bonus depreciation, you will receive all of the federal depreciation and the first year’s state depreciation according to the five-year MACRS schedule. See diagram.

Why should I invest in solar?

Depreciation returns will vary based on your federal and state tax rates, nonetheless, solar is one of the best investments you will ever make because of its fast and huge payback, which occurs as quickly as year one. That huge payback in year one makes your payback period much shorter resulting in a much higher ROI too.

With benefits such as accelerated depreciation, the 30% solar tax credit, SRECs (Solar Renewable Energy Credits), and grants, some commercial solar systems reach payback in as little as five years. That means at least 25 years of free electricity!