What is MACRS? How is MACRS calculated?

Owned by Samantha Lieberman
Last updated: Feb 21, 2022 by Eric Suarez
2 min read

What is MACRS Depreciation?

MACRS (pronounced MAKERS) stands for Modified Accelerated Cost-Recovery System and depreciation is known as the reduction in the value of an asset over time due to wear and tear or normal use.

Depreciation is classified as an expense and may be deducted from your taxable income, thus reducing the cost incurred for the solar power system. Depreciation is your business's way of recovering the costs incurred from the installation of a solar system.

What sites are eligible for MACRS?

Commercial solar systems are eligible to be depreciated over a 5-year, accelerated rate schedule. You can find more information on IRS Publication 946: How to Depreciate Property.

The most important detail to note is that 85% of the cost of solar is eligible for the 5-year depreciation rates.

If you are running a profitable business and you can clearly show that the solar power you are generating is for business use, then solar and its incentives may have a strong impact on your bottom line.

What are the MACRS Depreciation Rates (Rate Schedule)?

Look at the 5-year column to find the percentages you would use to depreciate your solar installation. The chart below comes straight from the IRS Publication 946 referenced above.

How does EverBright Calculate MACRS Depreciation?

Example: A solar installation for a business in Boca Raton costs $100,000 and we assume our customer has a 33% tax bracket/tax rate. How do we find out how much depreciation this business is eligible for in each of the 5 years?

  1. We must find the depreciable basis – This is simply the install cost of the solar project multiplied by 85%. The depreciable basis is what’s used to calculate the amount of depreciation for each year of the 5-year schedule. $100,000 x .85 = $85,000

  2. Next, we multiply the depreciable basis by the depreciation rate. If we are in year 1, then we use the rate of 20% for year 1 found in the chart above. $85,000 x .20 = $17,000

    1. In subsequent years, the depreciation rates will be as follows based on the chart above: 32%, 19.2%, 11.52%, 11.52%, and 5.76%.

  3. Last, we multiply the yearly depreciation amount by the assumed tax rate of 33% to find the actual dollar value of the depreciation for the specific year. $17,000 x .33 = $5,610

  4. Repeat steps 2-3 using the depreciation rates in the chart above we find the actual dollar amounts for the remaining years.

    1. Year 2: $85,000 x .32 x .33 = $8,976

    2. Year 3: $85,000 x .192 x .33 = $5,385.60

    3. Year 4: $85,000 x .1152 x .33 = $3,231.36

    4. Year 5 : $85,000 x .1152 x .33 = $3,231.36

    5. Year 6: $85,000 x .0576 x .33 = $1,615.68

This should help you understand how depreciation for solar installations works. Please reach out to us at support@goeverbright.com should you have further questions about how MACRS will impact the cashflows of your commercial solar project!