The word is out on the Federal Investment Tax Credit, but did you know that solar equipment falls under 100% Bonus Depreciation?

Get your investment back faster!

Solar falls under the MACRS method for recovering costs spent on qualifying assets. This has been the case for many years and just this year under the Trump tax plan, there is a 100% Bonus Depreciation included.

What is MACRS?

Rooftop Commercial Solar Installation

In 1986 the IRS implemented a specific set of rules for deducting tangible business expenses called the Modified Accelerated Cost Recovery System. Equipment falls under one of many categories and solar energy’s schedule is five years. This means that a business could deduct the cost of their power in an accelerated five year period.

One caveat, in this case, is that the government will not allow you to recover the cost of the whole system if you take the Federal ITC. More specifically, you can depreciate half of the 30% ITC. For calculation purposes, this translates to depreciating 85% of the total cost of the system.

How does the BONUS work?

To encourage companies to spend, the government introduces a bonus that mean an even faster recovery of capital expenditures. The recently enacted tax plan this year moves from a 50% bonus in 2017 to a 100% bonus in 2018.

This means that businesses can take all the depreciation in the same year that the system was put together. Therefore, a commercial entity can deduct 85% of the cost of the system (along with the 30% ITC)in year one. The amount of “cash value” this depreciation depends on the tax bracket that the business is in. Simply: Value = depreciable basis * tax bracket.

Example

Total System Cost $100k
Federal ITC $30k
100% Bonus Year 1 $85k
Depreciation Cash Value $17k
Total Back $47k
Net Cost $53k

100% Bonus Depreciation

The result is a cost recovery system of almost half within a year of purchasing. And if you are South Carolina, you might be eligible for a state tax incentive worth 25% the total cost. While this might take years due to a $3500/year max, it still helps the equation.

The End Result

It’s easy to forget the reason why you are considering solar in the first place: to provide cleaner power for your building. In the case of SCE&G, you might be paying $0.14/kWh and solar can knock out a significant amount of your monthly expense. So you will save money from not paying the power company and you will recover the cost of the equipment you purchased. The end result is a short term investment of 2-5 years.

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