To help you produce proposals for PV systems, we've created several new MACRS incentives in the ModSolar Platform. These new incentives calculate the depreciation savings for years 1 through 6 (after the installation), using the standard MACRS depreciation formulas, for your customer's appropriate tax rate, but with no year 1 bonus deduction.
You'll notice 4 new federal incentives that your administrators can enable in the incentives area in the settings section of the Platform:
- MACRS 15% (no bonus)
- MACRS 25% (no bonus)
- MACRS 34% (no bonus)
- MACRS 35% (no bonus)
The "(no bonus)" indicator reminds you that these incentives do not apply the 50% bonus in year one. The % indicator refers to the corresponding tax rate. Choose the incentive that matches your customer's rate. For example, if your customer pays a 34% corporate tax rate, choose the "MACRS 34% (no bonus)" incentive.
For you administrators out there, the Incentive Calculations screen (in Settings) will now show all 4 MACRS tax rates:
Note that the first one is selected by default, and is now 34%. If you'd like the rest of the rates active, simply check on them, and they will show in the incentives page in the proposal generation flow:
In the image above, all of the MACRS incentives have been checked, so you could see the difference in the incentive amount because of the difference in tax rate.
NOTE: You should NEVER choose more than one MACRs incentive for a proposal.
On the Incentive Calculations page in Settings, you'll have to click the Calculation Sequence icon next to each state in which you do business and set the calculation sequence, or just save the calculation sequence without making any changes, to tell the Platform that these new incentives need to be made available in your proposals:
All of the MACRS incentive calculations start by determining the "cost basis" of the solar equipment.
Federal regulations provide a 30% tax credit for solar installations, but the MACRS rules allow half of that credit to be added back to the cost basis. For example, if a system costs $100,000, the customer will receive a $30,000 tax credit the first year, resulting in an effective cost of $70,000 for the system.
However, the MACRS cost basis will actually be $85,000 (assuming no incentives other than the federal tax credit were applied) — $85,000 is the amount that can be depreciated over 6 years.
The depreciation factors for those 6 years are 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76%. (Note that they add up to 100% — resulting in full depreciation after 6 years.)
Thus, in our example of a $100,000 system with a cost basis of $85,000, your customer will be able to claim the following deductions:
Year 1: $17,000
Year 2: $27,200
Year 3: $16,320
Year 4: $9,792
Year 5: $9,792
Year 6: $4,896
TOTAL = $85,000
Those values represent the deductions that may be taken. Because these are tax DEDUCTIONS and not CREDITS, the actual net savings will depend on the customer's tax rate. For example, a $17,000 deduction in a 15% tax bracket represents a savings of $2,550; that same $17,000 deduction in a 35% tax bracket represents a savings of $5,950.
Finally, remember that the MACRS incentives will not impact that up-front ("Year 0") costs. They don't "kick in" until the first time the customer files their taxes (sometime within the first year after installation).
Updates to Modified Accelerated Cost Recovery System (MACRS)
Depreciation tax deductions for PV systems installed on business and investment properties have been extended!
Business owners can still take a 50% BONUS depreciation in the first year after installation (in addition to the standard first year depreciation), further accelerating the tax benefits of depreciating the cost of the solar installation. All equipment placed in service before January 1, 2018 can qualify for 50% bonus depreciation. Equipment placed in service during 2018 can qualify for 40% bonus depreciation. And equipment placed in service during 2019 can qualify for 30% bonus depreciation.
All these incentives have been provided to you to make your proposals even more precise. Of course, you can always contact us at any time with any questions you might have!