Solar Depreciation Tax Strategy
Depreciate your solar equipment on a five year schedule, or take 100% bonus depreciation in year one. Your CPA or tax consultant confirms whether you qualify.
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Straight answer
What Is the Solar Depreciation Tax Strategy?
Depreciation lets an owner of income-producing property deduct its cost over its useful life. Because most utilities pay for the power a solar system exports, some owners treat the system as income-producing property and depreciate it over a five year MACRS schedule, or claim 100% bonus depreciation in the first year. Eligibility depends on your tax situation, so review it with your CPA or tax consultant.
- Depreciation schedule
- 5 years
- MACRS five year property class
- First year option
- 100% bonus depreciation
- Take the full deduction in year one if you qualify
- Who confirms eligibility
- Your CPA
- Or your tax consultant
- Equipment useful life
- 25 years
- Standard useful life for solar equipment
Pricing shown is typical and a starting point. Your exact quote is confirmed after a site survey and depends on roof condition, electrical service, equipment choices and distance from a Coastal Energy location.
Get an accurate quoteThe basics
Why Depreciation Matters Now
The federal residential solar tax credit has expired. Depreciation is a separate part of the tax code, and it has not gone away. For owners whose solar system produces taxable income, depreciation can recover a meaningful portion of the equipment cost through deductions rather than a credit.
We are educating our own team and our customers on this because it is commonly misunderstood. Depreciation is not automatic, it is not for everyone, and it is not something we determine for you. What we do is explain how it works, then encourage you to review your specific situation with your CPA or tax consultant.
IRS requirements
The Four IRS Tests for Depreciable Property
Per IRS guidance, property must meet all four of these requirements to be depreciable. Your CPA or tax consultant can walk through each one with you.
1. You Own the Property
You bought the system outright or financed the purchase. Property still counts as owned when it is subject to debt, and a capital or finance lease is treated as a purchase with debt financing.
2. It Is Used in a Business or Income-Producing Activity
Most utilities compensate you for the power your system exports through net metering or a similar program. The IRS has stated that compensation for exported power is taxable income unless the code exempts it, and it does not.
3. It Has a Determinable Useful Life
Solar equipment wears out and loses value over time. The useful life generally used for solar equipment is 25 years.
4. It Lasts More than One Year
Solar equipment is designed for decades of service, so this test is straightforward.
How it is taken
Five Year Schedule or 100% in Year One
Solar equipment falls in the MACRS five year property class. Under the half-year convention, the deductions spread across six tax years. Owners who want the full benefit up front may instead claim 100% bonus depreciation in the first year if they qualify.
| Tax year | MACRS five year schedule | 100% bonus depreciation |
|---|---|---|
| Year 1 | 20.00% | 100% |
| Year 2 | 32.00% | - |
| Year 3 | 19.20% | - |
| Year 4 | 11.52% | - |
| Year 5 | 11.52% | - |
| Year 6 | 5.76% | - |
Percentages are the standard MACRS five year rates and apply to the depreciable basis, not to your tax bill. Your actual benefit depends on your basis, your income and your tax rate. Coastal Energy is not a tax advisor and does not give tax advice. Confirm everything with your CPA or tax consultant.
Process
How to Review Depreciation With Your Tax Professional
01
We Explain the Strategy
During your solar proposal, we cover what depreciation is, the four IRS tests, and the difference between the five year schedule and 100% bonus depreciation. No promises about your outcome.
02
Talk With Your CPA or Tax Consultant
Bring the strategy to your own CPA or tax consultant. They know your return and can tell you whether depreciation fits your situation.
03
Consultation and Eligibility Review
They review ownership, your utility's export compensation program, your income situation, and whether the deductions are usable in your case.
04
Documentation
We provide the equipment invoice, in-service date and system details you need for filing. Utility interconnection and net meter documentation supports the income-producing use.
05
Filing and Follow Through
You or your tax professional file the depreciation. If your utility issues a 1099 for exported power, that income gets reported as well.
Commercial
Businesses Have a Second Lever
Commercial solar projects can still pair depreciation with the federal commercial Investment Tax Credit. That combination is why business paybacks often run shorter than residential paybacks even now that the residential credit is gone.
If you own a business, a rental property, or a commercial building, start on our commercial solar page and tell us the entity that will own the system. It changes how the project should be structured.
Straight talk
What We Will and Will Not Tell You
We will explain the strategy and provide clean documentation for your CPA or tax consultant. We will not tell you that you qualify, quote you a dollar amount of tax savings, or file anything on your behalf.
Depreciating a residential system requires treating exported power as income-producing activity and reporting that income. That is a real decision with real reporting obligations, and it should be made with a tax professional who has seen your return. If a solar company promises you a specific tax outcome, be skeptical.
Answers
Frequently Asked Questions
What Is a Solar Depreciation Tax Strategy?
What is the depreciation schedule for solar equipment?
Who decides whether I qualify?
Do I have to report income from net metering?
Does financing change eligibility?
Can a homeowner really depreciate solar panels?
What is 100% bonus depreciation?
Does the expired residential tax credit affect depreciation?
Does Coastal Energy give tax advice?
Keep reading
Related Pages
Ask Us About Depreciation
Tell us who will own the system and we will explain the strategy and provide the documentation your CPA or tax consultant needs.