What is MACRS and how does it facilitate investment in renewable energy?

MACRS stands for Modified Accelerated Cost Recovery System, which is a method of depreciation established in 1986. It is a form of depreciation used to recover tax on investments in certain tangible assets over a specific time period through annual deductions. Businesses use this tool to recover certain capital costs over the property's lifetime. The property classes determine the depreciable life, ranging from three to fifty years, with different classes having different time frames. Most property uses MACRS as the current depreciation method, making it an essential tool for businesses to make long-term investments. The market certainty provided by MACRS encourages private investment in a variety of economic sectors, including renewable energy. Qualifying solar energy equipment is eligible for a cost recovery period of five years, and other renewable energy technologies, including wind energy property, geothermal, fuel cells, and combined heat and power technology, also qualify for a five-year cost recovery period.

Unprecedented Growth

The depreciation process also includes the Investment Tax Credit (ITC), allowing companies to claim a tax deduction for the recovery of the cost of tangible property over the useful life of the property. This enables businesses to recover their depreciable basis over five years, reducing tax liability and accelerating the rate of return on solar investments. Accelerated depreciation, along with other successful energy tax incentives, has helped spur unprecedented growth in annual solar installations.

Further Incentives

In 2010, Congress further incentivized capital investment by allowing companies to claim a 100% depreciation bonus on qualifying capital equipment purchased and placed in service by December 31, 2011, and an extension of 50% bonus depreciation in 2013, which was set to expire at the end of that year. However, Congress retroactively extended the 50% depreciation bonus in 2014 and passed the Protecting Americans from Tax Hikes Act of 2015, which included a five-year extension of bonus depreciation with a phase-out structure. The Tax Cuts and Jobs Act of 2017 expanded the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service between September 27, 2017, and January 1, 2023, while also expanding the definition of property eligible for 100% bonus depreciation to include used qualified property.

In conclusion

MACRS and its associated policies, such as the ITC and bonus depreciation, provide businesses with the certainty to make long-term investments, drive innovation in renewable energy, and lower costs for consumers.