Can you depreciate solar panels?

Yes, if a business owns the solar panels and uses them in a trade or business or a rental property. Business solar is 5-year property under the Modified Accelerated Cost Recovery System (MACRS), and in 2026 it usually qualifies for 100% bonus depreciation. Panels on your own home can't be depreciated.

Depreciation on solar panels is the second half of solar's tax benefit. The 30% Investment Tax Credit (ITC) cuts your tax bill directly, and depreciation lets you deduct most of the system's cost against income. Together they can cover close to half the cost of a commercial system in year one.

Homeowners are different. A system on your own house is personal-use property, so there's no depreciation, and the residential Section 25D credit ended for costs paid after 2025 (see our solar tax credit 2026 guide). A landlord who puts panels on a rental, or a business that puts them on its warehouse, can depreciate them. For the credit side, start with our commercial solar tax credit guide.

What is the MACRS depreciation schedule for solar panels?

Business solar panels are 5-year MACRS property. Under the half-year convention, you deduct 20% of the depreciable basis in year one, 32% in year two, 19.2% in year three, 11.52% in years four and five, and 5.76% in year six. Solar that qualifies for the Section 48E credit gets this class under Section 168(e)(3)(B)(viii).

The percentages come from Table A-1 in IRS Publication 946. The schedule runs six tax years for 5-year property because the half-year convention treats the system as placed in service mid-year.

There's a 2025 change worth knowing. Section 70509 of the One Big Beautiful Bill Act struck the older solar and wind category from Section 168(e)(3)(B)(vi) for property whose construction begins after December 31, 2024. Solar that qualifies for 48E is still 5-year property under clause (viii), which covers 48E property and 45Y facilities. A system that can't qualify for any credit, such as one that misses the 48E deadlines, may fall back to a longer recovery period. Our Section 48 vs. 48E guide explains which credit your project uses.

How does the solar tax credit reduce depreciation?

You must reduce the system's depreciable basis by half of the investment credit you claim. With a 30% ITC, you depreciate 85% of the cost. With a 40% or 50% credit from bonus adders, you depreciate 80% or 75%. The rule is in Section 50(c)(3).

On a $1,000,000 system with a 30% credit, the credit is $300,000 and the basis drops by $150,000, so you depreciate $850,000. The text of 26 U.S.C. 50(c)(3) says that for any energy credit or clean electricity investment credit, "only 50 percent of such credit shall be taken into account" in reducing basis.

Bonus adders raise the credit but also the basis cut. An energy community or domestic content bonus that takes the credit to 40% costs you another 5% of depreciable basis. That's still a good trade: you gain 10 cents of credit and give up only 5 cents of deductions.

Can you take 100% bonus depreciation on solar in 2026?

Yes. The One Big Beautiful Bill Act restored 100% bonus depreciation permanently for property acquired after January 19, 2025. A business solar system placed in service in 2026 can usually deduct its entire depreciable basis in year one. For the first tax year ending after January 19, 2025, owners could elect 40% instead.

That makes solar bonus depreciation far more generous than it was set to be. Before the 2025 law, bonus depreciation was phasing down 20 points a year and would have been 20% in 2026. Section 70301 of Public Law 119-21 replaced "the applicable percentage" with "100 percent" in Section 168(k)(1)(A), for property acquired after January 19, 2025. Equipment bought under a binding contract signed before that date may still fall under the old phase-down, so check your contract dates.

With 100% bonus, the $1,000,000 example deducts $850,000 in year one. At the 21% corporate rate that's $178,500 of tax savings on top of the $300,000 credit, a $478,500 first-year benefit. Our tax credit vs. deduction guide explains why the credit is worth more per dollar. You can also opt out of bonus for a whole asset class and use straight MACRS if you'd rather spread deductions across years with higher expected income.

Should you use Section 179 for solar instead?

Usually not. Section 179 can expense up to $2,560,000 of equipment in 2026, phasing out above $4,090,000. But it can't exceed your business income, while bonus depreciation can create a loss. For most solar projects, 100% bonus does the same job with fewer limits.

The 2026 figures come from Rev. Proc. 2025-32, which applied inflation to the $2.5 million limit and $4 million phase-out the 2025 law set for 2025. Section 179 is still useful in a few cases. Some states that don't follow federal bonus depreciation do allow Section 179, and a business can choose 179 for one asset and bonus for others. Ask your CPA how your state treats both.

What limits solar depreciation benefits?

Four things can limit the benefit: passive activity rules for individuals and closely held corporations, at-risk rules on financed systems, state tax laws that don't follow federal bonus depreciation, and depreciation recapture when you sell. Many owners also sell the tax credit and keep the depreciation.

• Passive activity rules. If you don't materially participate in the solar business, Section 469 can delay losses until you have passive income. This often affects individual investors more than operating companies with solar on their own buildings.

• State conformity. Several states require you to add back federal bonus depreciation and deduct it over time instead.

• Recapture. Sell the system and the depreciation you took can be taxed as ordinary income under Section 1245. Sell or stop using it within five years and you may also owe ITC recapture.

• Financing. Loans and leases change who claims the deductions. Our commercial solar financing guide compares the options.

Do you keep depreciation if you sell the solar tax credit?

Yes. When you sell a solar ITC under Section 6418, you keep the system and its depreciation. The buyer gets only the credit. You still reduce basis by half the credit, and the cash you receive from the sale isn't taxable income.

That makes selling attractive for owners who can use deductions but not a large credit. A company with modest tax liability can use bonus depreciation to cut taxable income, then sell the credit for cash at roughly 91 cents per dollar, the 2026 average ITC price reported by Crux. See how to sell commercial solar tax credits and our commercial solar panel cost guide to run your own numbers.

Sources

• 26 U.S.C. 168, Accelerated cost recovery system, including the Pub. L. 119-21 amendment notes for sections 70301 and 70509

• 26 U.S.C. 50, Other special rules (basis adjustment for energy credits)

• IRS, Publication 946, How To Depreciate Property

• IRS, Rev. Proc. 2025-32, 2026 inflation adjustments including Section 179

• Crux, Takeaways from clean energy finance in H1 2026