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Solar Panels


Solar Panel Roof


Under MACRS, solar energy equipment is typically classified as 5-year property. This means the cost of the equipment is depreciated over a five-year period. The IRS provides predefined depreciation rates for each year of the asset's recovery period under the General Depreciation System (GDS). As of April 2023, the GDS uses a 200% declining balance method for 5-year property.

Here's a simplified example of how you might depreciate a $500,000 investment in solar energy equipment over five years:

  • First Year: The half-year convention is typically applied in the first year, meaning only half a year's depreciation is calculated for the first year, regardless of when during the year the equipment was placed in service. For 5-year property, the first-year depreciation rate is 20%. Therefore, first-year depreciation would be $500,000 * 20% * 0.5 = $50,000.

  • Second Year: In the second year, you apply the full year's depreciation rate of 32% to the adjusted basis (initial cost minus accumulated depreciation). So, the depreciation for the second year would be $500,000 * 32% = $160,000.

  • Third Year: The third-year depreciation rate is 19.2%. The depreciation for the third year would be $500,000 * 19.2% = $96,000.

  • Fourth Year: The fourth-year depreciation rate is 11.52%. The depreciation for the fourth year would be $500,000 * 11.52% = $57,600.

  • Fifth Year: The fifth-year depreciation rate is also 11.52%, but remember to adjust for the half-year convention from the first year. So, the depreciation for the fifth year would be $500,000 * 11.52% = $57,600.

  • Sixth Year: In the sixth year, you take the remaining half-year's depreciation. This would be half of the fourth and fifth year's rate, so $500,000 * 11.52% * 0.5 = $28,800.

Adding these up, the total depreciation over the six calendar years (but five fiscal years due to the half-year convention) would be $450,000. The remaining $50,000 is not depreciated under MACRS as the system front-loads the depreciation.

Please note that this is a simplified example and actual depreciation calculations can be more complex, especially if there are other factors to consider such as bonus depreciation, Section 179 deductions, or if the property is placed in service in a month other than January. Always consult with a tax professional for accurate and personalized advice.

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