Tax Incentives for Commercial Solar
Because the federal government changed the tax plan, commercial solar panels are more affordable than ever. The way that solar systems are depreciated has been changed so that they’ll cost businesses less. The plan, called the Tax Cuts and Jobs Act (H.R. 1), 1 increases the 50% “bonus depreciation” allowance to 100 percent for property placed in service after September 27, 2017, and before January 1, 2023. Depreciation means the wear and tear of a product over its life, as it ages and becomes less useful.
How Does This Impact Commercial Solar?
First off, let’s define commercial solar and why it it’s eligible for the new law. Commercial solar is considered machinery that can be depreciated; therefore, it is eligible for MACRs tax depreciation. The same law does not apply to solar for residences.
100% of the system’s cost can now be depreciated in the first year due to the new plan. This is favorable for businesses. In our opinion, tax benefits for commercial solar are much better than that for residential solar.
How Does the Depreciation Work to Save Money on Your Solar System?
Here’s an example of the math for a solar system using the new bonus depreciation, assuming a 35% tax bracket.
Let’s say the system costs $100,000 and the 30% Income Tax Credit is $30,000. This would be the equation for the MACRs 100% Bonus Tax Depreciation: $29,750 (0.35* X 0.85** X $100,000). The net system costs ends up being $40,250.
*0.35 is the example we used for your personal income tax bracket
**0.85 is 85% from Section 48 credit.
If you are paying taxes in the amount $59,750 in 2018, then it may be worthwhile to do this solar project.
As you can see, the ability to depreciate 100% of the system the first year adds to the savings on a solar system for businesses.
Some Customers are Already Benefiting
Those customers include ALCO Industries, one of our commercial solar customers who recently benefited from this new tax law. Click here to view the drone video of his rooftop commercial solar installation.
Combined with the previous 30% ITC on solar systems, the federal government is making now a better time than ever to install solar for your business. Aikyum Solar is experienced in commercial solar installations and is happy to help your business go solar.