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Get a Free Quote5-year accelerated depreciation + 20% first-year bonus + Section 48 ITC + NJ ADI stacking. 2026 is the last year with any bonus depreciation — it drops to 0% in 2027.
MACRS Schedule
5 Years
vs. 25+ year panel life
2026 Bonus
20%
First-year extra deduction
ADI Rate
$85.00
/MWh for 15 years
ITC Stacking
30-70%
Section 48/48E credit
The Modified Accelerated Cost Recovery System (MACRS) is a federal tax depreciation method that allows businesses to recover the cost of capital assets through annual deductions. Commercial solar energy systems qualify for 5-year MACRS depreciation — meaning the IRS lets you write off the entire cost of a solar system over just 5 tax years, even though solar panels last 25-30+ years.
This is not a tax credit — it is a tax deduction that reduces your taxable income. The faster you can deduct the cost, the sooner you reduce your tax bill and recover your investment. MACRS front-loads these deductions, with the largest percentages in Years 1 and 2.
For New Jersey businesses, MACRS is exceptionally powerful because NJ has among the highest commercial electric rates in the nation (~$0.26/kWh). When you combine accelerated depreciation tax savings with actual electricity cost avoidance plus NJ ADI/SREC-II payments ($85.00/MWh for 15 years), the payback period on commercial solar drops dramatically — often to 3-5 years for C-corps.
Without MACRS, a business would depreciate solar panels over their useful life (25-39 years using straight-line depreciation), generating small annual deductions. MACRS compresses the entire deduction into 5 years, with most of the value concentrated in Years 1-3. This creates significantly larger deductions when they matter most — during the early years of system ownership when you are recovering your investment.
In addition to the standard 5-year MACRS schedule, commercial solar systems placed in service in 2026 qualify for 20% first-year bonus depreciation. This allows businesses to deduct an extra 20% of the adjusted depreciable basis in Year 1 — on top of the regular MACRS percentage.
2022
100%
Expired
2023
80%
Expired
2024
60%
Expired
2025
40%
Expired
2026
20%
Current
2027
0%
No Bonus
The Tax Cuts and Jobs Act (TCJA) established a phase-down from 100% bonus depreciation in 2022 to 0% by 2027. A system placed in service in 2026 gets 20% bonus. A system placed in service in 2027 gets nothing — only the standard 5-year MACRS schedule. For a $560,000 system, this timing difference means approximately $28,500 more in Year 1 tax savings by acting in 2026.
The MACRS 5-year property class uses the 200% declining balance method switching to straight-line in the later years. With the 2026 bonus, Year 1 captures 36% of the depreciable basis — nearly double the standard rate.
| Year | Standard MACRS | With 20% Bonus (2026) | On $476K Basis* |
|---|---|---|---|
| Year 1 | 20.00% | 36.00% | $171,360 |
| Year 2 | 32.00% | 25.60% | $121,856 |
| Year 3 | 19.20% | 15.36% | $73,114 |
| Year 4 | 11.52% | 9.22% | $43,887 |
| Year 5 | 11.52% | 9.22% | $43,887 |
| Year 6 | 5.76% | 4.60% | $21,896 |
| Total | 100% | 100% | $476,000 |
* Example: $560,000 system with 30% ITC. Depreciable basis = $560,000 - ($168,000 x 50%) = $476,000
Businesses that own their commercial solar system can claim both the Section 48/48E Investment Tax Credit (ITC) and MACRS depreciation. The key interaction: the depreciable basis must be reduced by 50% of the ITC claimed. Here is the step-by-step calculation:
The ITC is a dollar-for-dollar federal tax credit. The base rate is 30% for projects meeting prevailing wage + apprenticeship requirements. Bonus adders can push this to 40%, 50%, or up to 70%.
$560,000 system x 30% = $168,000 ITC (tax credit, not deduction)
Reduce the total system cost by 50% of the ITC claimed. This prevents "double-dipping" — you still depreciate most of the cost, but not the full ITC-covered portion.
$560,000 - ($168,000 x 50%) = $560,000 - $84,000 = $476,000 depreciable basis
Apply the 20% first-year bonus to the adjusted basis, then apply the standard Year 1 MACRS rate (20%) to the remaining balance. The result is a 36% effective Year 1 rate.
Bonus: $476,000 x 20% = $95,200. Regular MACRS: $380,800 x 20% = $76,160. Year 1 total: $171,360
Combine the ITC (dollar-for-dollar credit) with the depreciation deduction (multiplied by your marginal tax rate). For a C-corp, the federal rate is 21% plus NJ CBT at 9%.
$168,000 ITC + ($171,360 x 30%) = $168,000 + $51,408 = $219,408 Year 1 tax benefit
| ITC Rate | Basis Reduction | Depreciable % of Cost | On $560K System |
|---|---|---|---|
| 30% | 15% | 85% | $476,000 |
| 40% | 20% | 80% | $448,000 |
| 50% | 25% | 75% | $420,000 |
| 60% | 30% | 70% | $392,000 |
| 70% | 35% | 65% | $364,000 |
Formula: Depreciable Basis = System Cost - (ITC Amount x 50%). Higher ITC = lower depreciable basis, but the ITC credit itself more than compensates.
New Jersey has among the most favorable state-level tax environments for commercial solar in the country. Understanding NJ-specific rules is critical for accurate financial modeling.
New Jersey generally follows federal MACRS depreciation for CBT purposes. Key considerations:
Total depreciation over 5 years is the same — only the Year 1 timing may differ for NJ.
Solar energy equipment is 100% exempt from NJ sales tax (normally 6.625%). This applies to all solar components, inverters, racking, and batteries.
On a $560,000 system: $37,100 instant savings
Does NOT reduce MACRS depreciable basis
New Jersey exempts solar energy systems from property tax increases. Solar installations do not increase assessed property value.
NJ avg property tax rate: ~2.23% (highest in the US)
Without this exemption, a $560K system could add ~$12,500/yr in property taxes
The ADI (Administratively Determined Incentive) program provides guaranteed per-MWh payments for 15 years — on top of MACRS + ITC. ADI revenue does not reduce the MACRS depreciable basis.
EY2025-26 Rate
$85.00/MWh for qualifying projects. 15-year fixed payments.
EY2026-27 Rate
$85.00/MWh. Even better for projects commissioned later in 2026.
A 200 kW system producing ~240 MWh/year earns approximately $20,640/year in ADI payments. Full ADI guide
The Section 48/48E commercial ITC starts at a 30% base rate and can stack up to 70% with bonus adders. Each adder has specific eligibility requirements. The ITC is available for projects that begin construction before July 4, 2026.
Base ITC: 30%
Prevailing wage + apprenticeship (projects > 1 MW)
Domestic Content (FEOC): +10%
US-manufactured steel, iron, and components. Deadline: July 4, 2026
Energy Community: +10%
Brownfield, closed coal mine/plant, or fossil fuel employment area (check ZIP)
Low-Income: +10-20%
Located in low-income community or serving low-income beneficiaries
Maximum possible ITC: 30% + 10% + 10% + 20% = 70%. On a $560,000 system, that is $392,000 in tax credits.
The residential solar tax credit (Section 25D) expired December 31, 2025. Homeowners who buy solar with cash or a loan receive $0 from the federal government. The Section 48/48E commercial ITC is a separate program that remains available for commercial projects (including third-party-owned residential systems under PPA/lease structures) that begin construction before July 4, 2026. The third-party system owner — not the installer — claims the ITC.
MACRS depreciation requires taxable income to be effective — the deduction is only valuable if you have income to offset. Different business structures benefit in different ways.
Maximum benefit. C-corps deduct MACRS directly against corporate income. The 21% federal rate + 6.5-11.5% NJ CBT = up to 32.5% marginal tax savings on depreciable amount for the largest corporations.
MACRS deductions pass through to shareholders on Schedule K-1. Each shareholder deducts their pro-rata share against personal income. NJ personal income tax ranges from 1.4% to 10.75%. Requires sufficient tax basis.
Similar to S-corps. Depreciation allocations flow through to members per the operating agreement. Tax equity partnerships can optimize allocation. NJ taxes LLC income at the pass-through entity level or member level.
MACRS deductions flow to Schedule C. Effective if the owner has significant business income. Limited by passive activity rules if solar is a separate activity.
Cannot use MACRS directly (no taxable income). Instead, use PPA/lease structures where the for-profit system owner claims MACRS + ITC and passes savings through lower rates. NJ has strong PPA/lease market.
Let us walk through a real-world example of a 200 kW commercial solar system on a warehouse rooftop in Edison, New Jersey. This shows how MACRS, ITC, and NJ-specific benefits stack together to create one of the best commercial solar ROIs in the country.
System Size
200 kW
Gross Cost
$560,000
Location
Edison, NJ
Entity Type
C-Corp (9% CBT)
Section 48 ITC (30%)
$560,000 x 30% = dollar-for-dollar tax credit
$168,000
Depreciable Basis
$560,000 - ($168,000 x 50%) = adjusted basis
$476,000
Year 1 Bonus Depreciation (20%)
$476,000 x 20% = bonus deduction
$95,200
Regular Year 1 MACRS (20%)
($476,000 - $95,200) x 20%
$76,160
Total Year 1 Depreciation Deduction
$95,200 + $76,160
$171,360
Year 1 Depreciation Tax Savings
$171,360 x 30% (21% fed + 9% NJ CBT)
$51,408
Total Year 1 Tax Benefit
$168,000 ITC + $51,408 depreciation savings
$219,408
Sales Tax Savings
$37,100
6.625% exemption at purchase
Property Tax Avoided
~$12,488/yr
NJ avg 2.23% property tax rate (highest in US)
Annual Electricity Savings
~$62,400/yr
240,000 kWh x ~$0.26/kWh avg NJ commercial rate
ADI/SREC-II Revenue
~$20,640/yr
240 MWh x $85.00/MWh for 15 years ($309,600 total)
Additional MACRS deductions in Years 2-6 plus annual electricity savings ($62,400/yr) and ADI revenue ($20,640/yr for 15 years) further reduce effective cost. Typical payback: 3-5 years for NJ C-corps.
For smaller commercial solar installations, Section 179 may allow you to deduct the entire cost of the system in Year 1 — up to $1,220,000 in 2026 — instead of spreading deductions over 5 years with MACRS.
For most NJ commercial solar projects over $500K, MACRS is preferred because it has no income limitation and the bonus depreciation + MACRS Year 1 rate already captures 36% in Year 1. Section 179 is better suited for smaller systems where you want 100% deduction in Year 1 and have sufficient business income. Your CPA should model both scenarios. Full Section 179 guide
Common questions from CFOs, business owners, and tax advisors about MACRS solar depreciation in New Jersey.
MACRS (Modified Accelerated Cost Recovery System) allows New Jersey businesses to depreciate commercial solar systems over 5 years for federal tax purposes, even though solar panels last 25+ years. This front-loads tax deductions, creating significant cash flow benefits in the early years of ownership. In 2026, an additional 20% first-year bonus depreciation is available, further accelerating the tax benefit. The depreciable basis is reduced by 50% of any ITC claimed.
In 2026, businesses can claim 20% first-year bonus depreciation on the adjusted depreciable basis of a solar system, on top of regular MACRS depreciation. For example, on a $560,000 system with 30% ITC ($168,000), the depreciable basis is $476,000. The 20% bonus is $95,200, plus regular first-year MACRS of $76,160 on the remaining balance. This is the last year with any bonus depreciation -- it drops to 0% in 2027.
Yes. Businesses that own their commercial solar system can claim both the Section 48/48E ITC (30% base, up to 70% with adders) AND 5-year MACRS depreciation. The only interaction is that the depreciable basis must be reduced by 50% of the ITC claimed. For a 30% ITC, the depreciable basis becomes 85% of the system cost. For a 50% ITC, the depreciable basis becomes 75%. Both benefits require system ownership -- PPA and lease structures transfer these benefits to the third-party owner.
Yes. New Jersey generally conforms to federal MACRS depreciation for the Corporation Business Tax (CBT). NJ follows the federal 5-year MACRS schedule, and NJ businesses can claim MACRS deductions on both their federal and NJ state returns. However, NJ has historically decoupled from bonus depreciation -- businesses should confirm current-year conformity with their tax advisor. The standard 5-year MACRS schedule applies regardless.
When combining MACRS with the Section 48 ITC, the depreciable basis is reduced by 50% of the ITC claimed. The formula is: Depreciable Basis = Total System Cost - (ITC Amount x 50%). For example, a $560,000 system with a 30% ITC ($168,000) has a depreciable basis of $560,000 - $84,000 = $476,000. With a 50% ITC ($280,000), the depreciable basis would be $560,000 - $140,000 = $420,000.
The ADI (Administratively Determined Incentive, formerly SREC-II) program pays $85.00/MWh in Energy Year 2025-26. ADI revenue is treated as taxable income but does NOT reduce the MACRS depreciable basis. A 200 kW system producing ~240 MWh/year generates approximately $20,640/year in ADI payments on top of MACRS + ITC benefits. This stacking is what makes NJ one of the best commercial solar markets in the country.
C-corporations with high taxable income benefit most, since they can directly deduct MACRS against corporate income at the 21% federal rate plus 6.5-11.5% NJ Corporate Business Tax rate (depending on income). S-corporations and multi-member LLCs also benefit, as depreciation deductions pass through to owners/shareholders via K-1s. Nonprofits and public entities cannot use MACRS directly but benefit indirectly through PPA/lease structures where the for-profit system owner claims MACRS and passes savings through lower rates.
Yes. 2026 offers 20% first-year bonus depreciation for commercial solar -- down from 40% in 2025, 60% in 2024, 80% in 2023, and 100% in 2022. In 2027, bonus depreciation drops to 0%. This means 2026 is the final year to capture any first-year bonus depreciation above the standard 20% MACRS Year 1 rate. Projects placed in service in 2027 or later will follow the standard 5-year MACRS schedule without any bonus.
Full commercial solar guide: ITC stacking, ADI program, financing, and ROI for NJ businesses.
NJ Administratively Determined Incentive: $85.00/MWh.
National MACRS guide: 5-year schedule, bonus depreciation, basis calculation, and entity comparisons.
Alternative to MACRS: up to $1,220,000 first-year expensing for commercial solar. Income limitations apply.
Get a personalized MACRS + ITC + ADI tax savings analysis for your New Jersey business. Our team will model the exact Year 1 benefit based on your system size, entity type, and tax situation.
Projects must begin construction before July 4, 2026 to qualify for Section 48 ITC. 2026 is the last year for bonus depreciation (drops to 0% in 2027).