SOLAR DEPRECIATION TAX BONUS
Solar Depreciation Tax Bonus
To explain the solar depreciation bonus, we first need to explain tax depreciation. Basically, depreciation is a way to spread the cost of an asset over its lifespan. For example, if you purchase a new car for $20,000, you can elect to depreciate the vehicle over five years. This means that each year, you can deduct $4,000 from your taxable income.
Depreciation can be a valuable tax deduction for businesses, as it allows them to write off the cost of big-ticket items like equipment and machinery. However, there are some important rules to be aware of. First, you can only start depreciating an asset once it has been placed in service. Second, the size of the deduction will depend on the depreciation method that you choose. There are several different methods available, so it’s important to work with a tax professional to determine which one will work best for your business.
How does solar depreciation work for businesses?
Businesses can leverage the current policy for depreciating solar systems to improve ROI and ultimately lower costs for the consumer. The US tax code allows for a tax deduction for the recovery of the cost of tangible property over what it qualifies as the useful life of the system. The Modified Accelerated Cost Recovery System (MARCS) is the current method for most property.
What is the basis of depreciation for solar?
Businesses can take advantage of deprecation to accelerate their ROI on a solar system. The Tax Cut and Jobs Act of 2017 provides an option for 100% bonus depreciation. Solar has a scheduled depreciation recovery period of 5 years – so you can spread it over 5 years or take it all in year 1.
A business cannot depreciate 100% of the project cost. The Investment Tax Credit (ITC) reduces the basis of depreciation by one-half of the tax credit amount allowed. With the current ITC at 26%, it will reduce the depreciable basis to 87% of the total cost. Therefore, if your system costs $100,000 you will be able to depreciate $87,000 of the cost. To calculate the value, you will multiply the basis by your federal income tax rate.
What is the bonus depreciation?
Through the Tax Cuts and Jobs Act of 2017, businesses can now claim 100% of bonus depreciation on qualifying capital equipment that is placed in service by January 1, 2023. This bonus makes the commercial solar incentive very attractive.