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NuWatt designs, installs, and manages solar, battery, heat pump, and EV charger systems across 9 states. One company, one warranty, one point of contact.
Get a Free QuoteTexas is unique: with no state income tax, MACRS depreciation only saves at the federal rate (21% for C-corps, up to 37% for pass-through entities). Model your year-by-year depreciation schedule, compare entity types, and understand how C-PACE financing interacts with MACRS. 2026 is the last year for bonus depreciation.
MACRS Schedule
5 Years
Accelerated depreciation
2026 Bonus
20%
Extra Year 1 deduction
TX State Rate
0%
No state income tax
Federal C-Corp
21%
Only federal benefit
A Texas C-corp installing a $300,000 commercial solar system (200 kW at $1.50/W) in 2026 can deduct $91,800 in Year 1 (36% of $255,000 depreciable basis with 20% bonus). At the 21% federal rate — the only rate available since Texas has no state income tax — that is $19,278 in Year 1 depreciation savings, plus a $90,000 ITC credit, totaling $109,278 in first-year tax benefits. Over the full 5-year MACRS schedule, total depreciation tax savings reach approximately $53,550. Pass-through entities (S-corps, LLCs) at higher marginal rates (37%) save proportionally more — up to $94,350 in total MACRS benefits.
This is the single most important difference between Texas and every other major solar market. In Massachusetts, Connecticut, California, and New York, businesses that install commercial solar get MACRS depreciation deductions against both federal and state income taxes. A Massachusetts C-corp saves at a combined 29% rate (21% federal + 8% state). A Connecticut business saves at 28.5% (21% + 7.5%).
In Texas, MACRS depreciation only reduces federal taxes. A Texas C-corp saves at 21% — period. There is no state income tax layer. This means the dollar value of MACRS depreciation in Texas is 28-30% lower than in high-tax states like MA or CT on the same system size.
However, this does not mean Texas commercial solar has worse economics. Texas compensates with installation costs that are 30-45% lower ($1.10-$1.35/W for large systems vs. $1.50-$1.90/W in MA/CT) and annual solar production that is 25-40% higher (1,500-1,700 kWh/kW vs. 1,175-1,200 kWh/kW in New England). The total return on investment is often comparable or better — it just arrives through different channels (lower cost and more energy production rather than higher tax deductions).
| State | State Rate | Combined Rate | Total MACRS Savings | Notes |
|---|---|---|---|---|
| Texas | 0% | 21% | $35,700 | Federal only (21%). No state income tax. |
| Massachusetts | 8% | 29% | $49,300 | MA does NOT conform to federal bonus depreciation. |
| Connecticut | 7.5% | 28.5% | $48,450 | CT conforms to federal MACRS schedule. |
| California | 8.84% | 29.84% | $50,728 | CA does NOT conform to federal bonus depreciation. |
| New York | 6.5% | 27.5% | $46,750 | NY conforms but NYC has additional tax. |
Texas businesses save $13,600 less in MACRS tax benefits compared to Massachusetts on a $200,000 system. But the same 200 kW system costs $300,000 in MA versus $200,000-$240,000 in TX — a $60,000-$100,000 cost advantage. And the TX system produces 25-40% more electricity annually. Lower MACRS benefit, but lower cost and more power.
The Modified Accelerated Cost Recovery System (MACRS) allows businesses to recover the cost of commercial solar systems through accelerated federal tax deductions over 5 years. This is dramatically faster than the 25-30 year useful life of solar panels, front-loading tax benefits into the earliest years when they have the most impact on cash flow and project IRR.
The 5-year MACRS schedule uses the 200% declining balance method. The standard percentages are: Year 1 (20%), Year 2 (32%), Year 3 (19.2%), Year 4 (11.52%), Year 5 (11.52%), and Year 6 (5.76%). Note that 5-year property actually spans 6 tax years due to the half-year convention — the IRS assumes you placed the asset in service at the midpoint of Year 1, so a half-year of depreciation extends into Year 6.
For Texas businesses, every dollar of MACRS deduction reduces federal taxable income. At a 21% C-corp rate, a $100,000 deduction saves $21,000 in federal taxes. For S-corp or LLC owners in the highest federal bracket (37%), that same $100,000 deduction saves $37,000. There is no additional state tax benefit — a key distinction from states like Massachusetts where the same deduction would save an additional $8,000 in state taxes.
MACRS is a tax deduction that reduces taxable income. At a 21% rate, a $170,000 total deduction saves $35,700. The ITC is a tax credit that reduces tax owed dollar-for-dollar — a $60,000 credit saves the full $60,000 regardless of tax rate. Both stack on the same system. The only interaction: the depreciable basis is reduced by 50% of the ITC claimed.
Depreciable basis: $300,000 - ($90,000 x 50%) = $255,000
| Year | MACRS % | Deduction | Federal Tax Savings (21%) | Cumulative Savings |
|---|---|---|---|---|
| Year 1 | 36.00%* | $91,800 | $19,278 | $19,278 |
| Year 2 | 32.00% | $65,280 | $13,709 | $32,987 |
| Year 3 | 19.20% | $39,168 | $8,225 | $41,212 |
| Year 4 | 11.52% | $23,501 | $4,935 | $46,147 |
| Year 5 | 11.52% | $23,501 | $4,935 | $51,082 |
| Year 6 | 5.76% | $11,750 | $2,468 | $53,550 |
| Total | 100% | $255,000 | $53,550 |
The Tax Cuts and Jobs Act (TCJA) established 100% bonus depreciation in 2022, with a scheduled phase-down of 20 percentage points per year. In 2026, businesses get 20% first-year bonus depreciation on the adjusted depreciable basis — on top of regular MACRS. In 2027, bonus depreciation drops to 0%. This makes 2026 the absolute last year to capture any bonus depreciation for commercial solar nationwide, including Texas.
2022
100%
Expired
2023
80%
Expired
2024
60%
Expired
2025
40%
Expired
2026
20%
Current
2027
0%
No Bonus
For a Texas C-corp with a $255,000 depreciable basis (after ITC reduction), the 20% bonus adds $51,000 in extra Year 1 deductions. At the 21% federal rate, that is $10,710 in additional Year 1 tax savings. For a pass-through owner at 37%, the bonus generates $18,870 in extra Year 1 savings. This benefit disappears entirely in 2027.
Without state income tax, the entity type comparison in Texas is simpler than in other states — but the differences are still significant. The key variable is the federal tax rate at which MACRS deductions are valued. C-corps use the flat 21% rate, while pass-through entities use the owner marginal rate (potentially up to 37%).
Federal Rate
21%
TX State Rate
0%
Franchise Tax
0.375% (if revenue > $2.47M)
Maximum MACRS benefit at flat 21% federal rate. TX has no state income tax — no state depreciation deduction. TX franchise tax (0.375%) does not interact with MACRS. Cleanest structure for commercial solar.
Federal Rate
37%
TX State Rate
0%
Franchise Tax
0.375% (entity level)
Depreciation passes through to shareholders on K-1 at their marginal federal rate (up to 37%). No TX state deduction. Higher effective benefit than C-corp if shareholders are in high federal brackets.
Federal Rate
37%
TX State Rate
0%
Franchise Tax
0.375% (entity level)
Similar to S-corp — depreciation allocated per operating agreement to members at their federal marginal rates. Tax equity structures can optimize allocation to members with the highest tax appetite. No TX state benefit.
Federal Rate
37%
TX State Rate
0%
Franchise Tax
N/A (disregarded entity)
Deductions flow to Schedule C at owner federal marginal rate. Passive activity rules may limit deductions if solar is a separate passive activity. No TX state benefit.
Federal Rate
0%
TX State Rate
0%
Franchise Tax
Exempt
Cannot use MACRS (no taxable income). Must use PPA or lease where a for-profit owner claims MACRS + ITC and passes savings through lower PPA rates. Very common structure in TX for schools and hospitals.
| Year | Deduction | C-Corp Savings (21%) | Pass-Through Savings (37%) | Difference |
|---|---|---|---|---|
| Year 1 | $91,800 | $19,278 | $33,966 | $14,688 |
| Year 2 | $65,280 | $13,709 | $24,154 | $10,445 |
| Year 3 | $39,168 | $8,225 | $14,492 | $6,267 |
| Year 4 | $23,501 | $4,935 | $8,695 | $3,760 |
| Year 5 | $23,501 | $4,935 | $8,695 | $3,760 |
| Year 6 | $11,750 | $2,468 | $4,348 | $1,880 |
| Total | $255,000 | $53,550 | $94,350 | $40,800 |
Texas does not have a state income tax, but it does have a franchise (margin) tax on businesses with total revenue exceeding $2.47 million (2026 threshold). The rate is 0.375% for retail and wholesale businesses, and 0.75% for all other entities. This is sometimes confused with income tax, but it operates completely differently.
The franchise tax is calculated on taxable margin, which is the lesser of three methods: (1) total revenue minus cost of goods sold (COGS), (2) total revenue minus total compensation, or (3) 70% of total revenue. Depreciation is not a direct component of any of these calculations. Solar equipment costs might reduce COGS if your business manufactures goods that use solar-generated electricity, but this is an indirect and limited benefit — not comparable to the direct depreciation deductions available through federal MACRS.
The practical takeaway: when modeling the tax benefits of commercial solar in Texas, ignore the franchise tax for MACRS calculations. Your depreciation benefit is purely federal. The franchise tax at 0.375% on margin is so small compared to the 21% federal corporate rate that any indirect benefit is negligible.
While Texas offers no MACRS benefit at the state level, it provides a 100% property tax exemption for commercial solar systems (TX Tax Code Section 11.27). You must file Form 50-123 with your county appraisal district by April 30 each year. This exemption prevents your solar system from increasing your property tax assessment — a significant benefit in Texas where property tax rates average 1.6-2.2%. On a $300,000 system, this saves $4,800-$6,600 annually in property taxes.
C-PACE (Commercial Property Assessed Clean Energy) is a powerful financing tool for Texas commercial solar, and it preserves your full MACRS and ITC eligibility. C-PACE is active in Austin, Dallas, Houston, and San Antonio, with terms of 20-30 years and rates typically 5-7%. Here is how C-PACE interacts with the tax benefits.
Who Claims MACRS
Business owner
Who Claims ITC
Business owner
Depreciable Basis
100% of cost minus 50% of ITC
Maximum tax benefit. Business must have sufficient federal tax liability to use deductions.
Who Claims MACRS
Property owner (borrower)
Who Claims ITC
Property owner (borrower)
Depreciable Basis
100% of cost minus 50% of ITC
C-PACE does not affect MACRS eligibility. The property owner still claims both ITC and MACRS even though financing is via property tax assessment. Key advantage: 100% financing + full tax benefits.
Who Claims MACRS
PPA provider (system owner)
Who Claims ITC
PPA provider (system owner)
Depreciable Basis
PPA provider claims on their basis
Business does NOT claim MACRS or ITC. Savings come from lower PPA rate vs. utility rate. Best for entities with low/no tax liability (nonprofits, schools).
Who Claims MACRS
Lessee (if structured as ownership)
Who Claims ITC
Lessee or lessor (depends on structure)
Depreciable Basis
Full system cost minus 50% of ITC
Must be structured as a capital lease (not operating) for lessee to claim MACRS. Consult CPA for proper structuring.
Note: C-PACE allows you to finance 100% of the project while claiming full ITC and MACRS immediately. The project is cash-flow positive from Year 1.
Texas commercial solar costs vary significantly by system size. Here are three common scenarios with full MACRS calculations at the 21% C-corp federal rate.
50 kW @ $2.00/W = $100,000
250 kW @ $1.60/W = $400,000
1000 kW @ $1.20/W = $1,200,000
The Section 48/48E ITC starts at 30% and can stack up to 70% with adders. Each additional ITC percentage reduces the depreciable basis slightly (50% of ITC claimed), but the combined benefit always increases. Here is how the math works for a $300,000 Texas system.
| ITC Scenario | ITC Amount | Depreciable Basis | Total MACRS Savings | Combined Benefit | % of Cost |
|---|---|---|---|---|---|
| 30% Base | $90,000 | $255,000 | $53,550 | $143,550 | 47.9% |
| 40% (+ FEOC) | $120,000 | $240,000 | $50,400 | $170,400 | 56.8% |
| 50% (+ Energy Community) | $150,000 | $225,000 | $47,250 | $197,250 | 65.8% |
| 60% (+ Low-Income Cat 1) | $180,000 | $210,000 | $44,100 | $224,100 | 74.7% |
| 70% (+ Low-Income Cat 2) | $210,000 | $195,000 | $40,950 | $250,950 | 83.7% |
Parts of Texas qualify for the +10% energy community ITC adder. The Midland-Odessa area, Beaumont-Port Arthur, and other regions with significant fossil fuel employment may qualify. Use the IRS Energy Community interactive map tool to check your project location. This adder can push the total ITC to 50% or higher when combined with domestic content compliance.
Complete commercial solar guide for Texas: ITC, MACRS, ERCOT deregulation, and financing options.
Full IRR/NPV calculator combining ITC, MACRS, electricity savings, and C-PACE financing for Texas.
Solar guide for TX small businesses: case studies, ITC, MACRS, and C-PACE financing.
The critical difference is that Texas has no state income tax. In states like Massachusetts (8% corporate excise) or California (8.84% corporate tax), MACRS depreciation provides both federal AND state tax savings — resulting in a combined rate of 28-30%. In Texas, MACRS only reduces federal taxes at the 21% C-corp rate (or up to 37% for pass-through entities). This means a $200,000 system generates approximately $35,700 in MACRS tax savings in TX versus $49,300 in MA. However, Texas compensates with significantly lower installation costs ($1.10-$1.35/W vs $2.15-$2.50/W in MA) and higher solar production (1,500-1,700 kWh/kW vs 1,175-1,200 kWh/kW).
Our team will model the exact depreciation schedule for your TX business — including entity type, ITC adders, C-PACE interaction, and the 2026 bonus depreciation window.