MACRS Depreciation + Section 48E: How Businesses Save on Commercial Solar in 2026

For businesses evaluating commercial solar, two federal tax incentives do most of the financial heavy lifting: MACRS depreciation and the Section 48E Investment Tax Credit. Together, they can reduce the effective cost of a solar installation by 50% or more in the first year, transforming the payback math from a long-term proposition into a near-term financial event.

Under OBBBA (the One Big Beautiful Bill Act, signed July 4, 2025), 100% bonus depreciation has been permanently restored and the Section 48E ITC remains available at 30% for projects that begin construction before July 4, 2026. That combination makes the current window one of the strongest incentive environments for commercial solar in the program's history.

But the window has edges. OBBBA also introduced phaseout timelines, new supply chain restrictions, and compliance requirements that didn't exist under the original IRA framework. This guide explains how both incentives work, how they interact, what the 2026 deadlines mean, and what businesses need to understand before the incentive landscape shifts.

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How does the Section 48E Investment Tax Credit work?

Section 48E provides a dollar-for-dollar credit against federal tax liability worth 30% of a qualifying solar energy system's cost for projects that meet prevailing wage and apprenticeship requirements. It's the technology-neutral Clean Electricity Investment Tax Credit that replaced the legacy Section 48 ITC for all projects beginning construction on or after January 1, 2025.

Base Credit: 30%

The base Section 48E credit is 30% of the total installed system cost for projects that meet prevailing wage and apprenticeship (PWA) requirements. For projects that don't meet PWA requirements, the base credit drops to 6%, making PWA compliance effectively mandatory for any economically viable commercial installation.

The credit applies to the full cost of the solar energy system, including panels, inverters, racking, wiring, installation labor, and permitting. It's claimed on the business's federal tax return for the year the system is placed in service.

Bonus Adders

The base 30% credit can be increased with qualifying adders:

Domestic content bonus adds 10% (bringing the total to 40%) for projects where a sufficient percentage of manufactured components are produced in the United States. OBBBA has tightened domestic content requirements and introduced Prohibited Foreign Entity (PFE) restrictions for 2026 projects. Manufacturers of modules, cells, and critical minerals from designated countries are restricted.

Energy community bonus adds 10% (bringing the total to 40%, or 50% stacked with domestic content) for projects located in qualifying energy communities, which are areas with significant fossil fuel employment, closed coal facilities, or brownfield sites. Parts of central and western Pennsylvania qualify under this designation.

The July 4, 2026 Construction Deadline

Under OBBBA, projects that begin construction before July 4, 2026 qualify for the full Section 48E ITC without the accelerated phaseout that applies to later projects. Solar and wind projects that begin construction after July 4, 2026 must be placed in service by December 31, 2027 to remain eligible. Projects beginning construction after December 31, 2026 face a reduced credit of 55% of the base rate.

"Begin construction" is established through either the Physical Work Test (meaningful physical work at the project site or at a factory where components are being manufactured) or the Five Percent Safe Harbor (paying or incurring at least 5% of total project cost). Either method satisfies the IRS requirement, but the project must then be completed under a Continuity Requirement that prevents indefinite delays.

For businesses considering commercial solar, this deadline means planning should begin now. Equipment procurement, site assessment, engineering, and permitting all take time, and beginning construction before July 4, 2026 requires those steps to be substantially completed beforehand.

How does MACRS depreciation accelerate cost recovery?

MACRS lets businesses depreciate a solar energy system over a 5-year schedule using an accelerated method that front-loads the deductions into the early years. MACRS (Modified Accelerated Cost Recovery System) is a federal tax provision that allows businesses to recover the cost of capital assets through annual depreciation deductions, and solar energy systems qualify as 5-year property (per IRS Section 168(e)(3)(B)).

How the Depreciable Basis Is Calculated

When a business claims the Section 48E ITC, the depreciable basis for MACRS is reduced by half the ITC value. With a 30% ITC, the depreciable basis is 85% of total system cost (100% minus 15%, which is half of 30%).

For a system that costs $500,000, the Section 48E ITC is $150,000 (30% of $500,000), and the depreciable basis is $425,000 (85% of $500,000). That $425,000 is then depreciated through MACRS, either over the standard 5-year schedule or in Year 1 with bonus depreciation.

100% Bonus Depreciation Under OBBBA

OBBBA permanently restored 100% bonus depreciation for qualifying property, including solar energy systems. This means the entire depreciable basis can be deducted in the first year the system is placed in service rather than spreading it over the 5-year MACRS schedule.

Under the previous TCJA phase-down, bonus depreciation had dropped to 40% in 2025 and was heading to 20% in 2026. OBBBA reversed that trajectory and set it permanently at 100% for qualifying assets acquired after January 19, 2025.

The practical impact: a business that installs a solar system in 2026 can deduct 100% of the depreciable basis in Year 1. At a combined federal and state tax rate of 30%, that translates to significant tax savings from depreciation alone, on top of the ITC credit.

How do the incentives stack up in a working example?

On a $500,000 commercial solar system, the ITC and bonus depreciation combine for a $277,500 tax benefit in Year 1, bringing the effective out-of-pocket cost down to $222,500. This example uses a 30% combined federal and state tax rate and assumes the base 30% Section 48E ITC, claimed as a dollar-for-dollar tax credit in Year 1, with no bonus adders.

That's a 55.5% reduction in effective cost before accounting for energy savings, which begin from Day 1 and continue for the 25 to 30-year life of the system. With domestic content or energy community bonus adders, the effective cost reduction can exceed 60%.

These numbers scale proportionally. The math applies the same way regardless of system size. The only variable is whether the business has sufficient tax liability to absorb the full benefit in Year 1 (if not, unused ITC can be carried forward for up to 22 years, and unused depreciation losses can be carried forward indefinitely).

Check out a more in depth article on Commercial Solar ROI.

What did OBBBA change from the original IRA framework?

The One Big Beautiful Bill Act preserved the core commercial solar incentives but made four changes that businesses need to understand: an accelerated phaseout timeline, permanently restored 100% bonus depreciation, new Prohibited Foreign Entity restrictions, and stricter domestic content requirements.

Accelerated phaseout timeline. The IRA's Section 48E credits were originally available through at least 2032 with no phasedown. OBBBA introduced a construction-start deadline of July 4, 2026 for full eligibility, with reduced credits for later projects.

100% bonus depreciation restored permanently. This is a significant net positive. Under the TCJA phase-down, bonus depreciation was heading to 20% in 2026 and 0% in 2027. OBBBA reversed this, giving businesses full first-year expensing for the foreseeable future.

Prohibited Foreign Entity (PFE) restrictions. For projects beginning construction in 2026, OBBBA requires that components meet Foreign Entity of Concern thresholds. Non-compliance with PFE rules can reduce or eliminate the base credit. Supply chain documentation and manufacturer verification are now required for credit eligibility.

Stricter domestic content requirements. The domestic content bonus adder now has tighter percentage thresholds and more rigorous documentation requirements. Treasury is required to publish updated safe harbor tables by December 31, 2026.

For tax-exempt organizations (nonprofits, municipalities, schools), the Section 6417 direct pay mechanism has been preserved under OBBBA but with its own set of accelerated compliance requirements.

Who can claim MACRS depreciation and the Section 48E ITC?

Businesses and income-generating entities that own their solar system can claim both MACRS depreciation and the Section 48E ITC. This includes commercial building owners and tenants (with landlord authorization), manufacturers and industrial facilities, agricultural operations, retail and hospitality businesses, healthcare facilities, office buildings, and warehouses and distribution centers.

The key requirements are ownership of the system (leased systems don't qualify because the leasing company claims the credits), use for income-generating purposes, and placement in service (installed, operational, and producing electricity) within the tax year the credits are claimed.

Homeowners cannot claim MACRS depreciation on residential solar installations unless the home is used for business purposes. Residential solar is covered by the separate Section 25D Residential Clean Energy Credit.

Why does timing matter in 2026?

Timing matters because projects that begin construction before July 4, 2026 lock in the full Section 48E credit without phaseout risk. Projects that begin construction after that date must be placed in service by December 31, 2027, which is a tight timeline, and projects beginning construction after December 31, 2026 face a credit reduction to 55% of the base rate.

The combination of 100% bonus depreciation and the full Section 48E ITC makes the current incentive window exceptionally strong, but that window has a defined endpoint.

Meanwhile, FEOC supply chain requirements are tightening. Equipment that qualified without restriction in 2024 may require documentation or sourcing changes in 2026. Waiting means navigating a more complex compliance landscape with less time to resolve issues.

For businesses that know solar is the right move, or are actively evaluating it, acting in the first half of 2026 provides the strongest financial outcome. Sundra helps businesses navigate the incentive landscape, model their specific financial return, and meet construction-start timelines.

See What Commercial Solar Looks Like for Your Business

The incentive math is compelling, but the real question is what it looks like applied to your specific building, energy profile, and tax situation. Sundra provides customized commercial solar assessments that include system sizing, projected energy savings, incentive modeling (ITC, MACRS, and applicable state programs), and construction timeline planning aligned with current deadlines.

If commercial solar is on your radar, the time to evaluate it is now, not after the July 4 construction deadline has passed.

MACRS Depreciation and Section 48E FAQs

What is MACRS depreciation for commercial solar?

MACRS (Modified Accelerated Cost Recovery System) allows businesses to depreciate the cost of a commercial solar system over a 5-year schedule, with the majority of the deduction front-loaded into the first two years. Combined with 100% bonus depreciation, which was permanently restored under OBBBA, businesses can deduct the full depreciable basis of a solar system in the first year it is placed in service.

What is the Section 48E Investment Tax Credit?

Section 48E is the technology-neutral Clean Electricity Investment Tax Credit that replaced the legacy Section 48 ITC for projects beginning construction on or after January 1, 2025. It provides a base credit of 30% of the system cost for projects that meet prevailing wage and apprenticeship requirements. Bonus adders for domestic content and energy community location can increase the effective credit to 40% or higher.

How do MACRS depreciation and the ITC work together?

The ITC and MACRS depreciation stack. A business claims the 30% ITC as a dollar-for-dollar tax credit, then depreciates 85% of the system cost (the full cost minus half the ITC value) through MACRS. With 100% bonus depreciation, both benefits are realized in the first year. Combined, they can reduce the effective cost of a commercial solar system by 50% or more depending on the business's tax rate.

What is the deadline for commercial solar tax credits in 2026?

Under OBBBA, projects that begin construction before July 4, 2026 qualify for the full Section 48E ITC without the phaseout schedule that applies to later projects. Solar and wind projects that begin construction after July 4, 2026 must be placed in service by December 31, 2027 to qualify. After that, credits phase down. Beginning construction in the first half of 2026 provides the strongest incentive position.

What does "begin construction" mean for solar tax credit purposes?

The IRS recognizes two methods for establishing that construction has begun: the Physical Work Test (meaningful physical work on-site or at a manufacturing facility) and the Five Percent Safe Harbor (paying or incurring at least 5% of the total project cost). Either method satisfies the requirement. Once construction has begun, the project must be completed with continuous activity. The IRS applies a Continuity Requirement to prevent indefinite delays.

Can homeowners claim MACRS depreciation on residential solar?

No. MACRS depreciation is only available to businesses and income-generating properties. Residential homeowners who install solar on their primary residence claim the Section 25D Residential Clean Energy Credit, which is a separate incentive from the commercial ITC and MACRS depreciation. A home used partially for business may qualify for partial MACRS benefits. Consult a tax professional for specifics.

What are the FEOC restrictions for commercial solar in 2026?

OBBBA introduced Foreign Entity of Concern (FEOC) and Prohibited Foreign Entity (PFE) rules that restrict the use of components manufactured by entities with ties to certain countries, primarily China, in projects claiming Section 48E credits. For projects beginning construction in 2026, non-compliance with FEOC material assistance thresholds can reduce or eliminate the base credit. Supply chain documentation and manufacturer verification are now required for credit eligibility.

Sources

1. IRS Publication 946: How to Depreciate Property — MACRS recovery periods, conventions, and basis rules.
2. IRS: Clean Electricity Investment Credit (Section 48E) — the tech-neutral ITC that replaced Section 48 for projects placed in service after 2024.
3. IRS: Elective Pay and Transferability — how credits can be transferred or paid directly to eligible entities.
4. DSIRE: Database of State Incentives for Renewables & Efficiency — state-level programs that stack with the federal credit.