The new tax bill signed in to law on December 22, 2017 makes some sweeping changes to our tax system. Largely, the tax benefits surrounding solar remain unchanged and will continue to help the industry march forward. For commercial solar there is one significant change that may bolster installations.
Changes in Tax Bonus Depreciation
Depreciation allows business owners and investors reduce their tax bills by writing off the cost of a solar asset. Previously under the MACRS system of depreciation, a business could expense their solar investment over a period of 5 years. For 2017, there was additional Bonus Depreciation of 50% in year one that was set to drop to 40% in 2018.
However, the new tax bill increased this from the falling 40% to a fully 100%. This means investors and business owners are able to recoup their money even faster! While tax rates did fall with the new bill, making depreciation less valuable, the ability to recover this money in year one makes solar more attractive.
This 100% Bonus doesn’t last forever. It is scheduled to phase down by 20% per year, starting with 80% in 2023, 60% in 2024 and so on until it is fully phased out in 2027. This gradual reduction will create a “soft landing” which helps create a sustainable marketplace. It is likely that change in the Investment Tax Credit will more significantly change the pace of solar installation, when it begins to drop after 2019 from 30% to 26%.
There are some clear winners and losers from this change in tax code. Solar is a clear winner. All current incentives stayed in place (nothing was cut or reduced) and those who invest in solar will be encouraged to move projects forward, since they will achieve their returns sooner. Solar installation in New York continues to grow, thanks to the tax incentives available to consumers.