Bonus Depreciation for Commercial Solar: A 2026 Guide

Businesses are in a “sweet spot” window for adding solar panels. Multiple government policies are allowing companies to stack tax benefits to maximize their savings on new projects. 

One of the largest incentives is the expansion of bonus depreciation rules under the One Big Beautiful Bill Act (OBBBA).

Depreciation rules previously allowed businesses to subtract the full value of solar panel purchases from their taxable income over a five-year period. However, the new law has allowed businesses to recover the full tax benefit of their project in the first year through 100% bonus depreciation. 

Combining this benefit with the 30% federal solar Investment Tax Credit gives businesses the potential to save about half of their solar project cost in the first year. 

This is one of the reasons that launching solar projects ahead of the federal tax credit safe harbor deadline is vital for commercial businesses. Here’s a guide to how bonus depreciation works, how it’s changing, and what businesses need to know about getting it.

• 100% Bonus Depreciation: New rules allow businesses to deduct up to 100% of a solar project’s cost from their taxable income. 
• Tax Benefit Stacking: Combining this with the 30% federal solar Investment Tax Credit, businesses can save nearly 50% of the cost of their system in year one.
• July 4 Deadline: To ensure they get the full federal solar tax benefit, businesses need to contact a solar installer to begin work on their project by July 4, 2026.

Businesses have been able to reap the benefits of depreciation in two ways over the past several years: bonus depreciation and MACRS depreciation. Both of these are a type of “accelerated” depreciation, which means that businesses are able to deduct a higher portion of the value of the asset earlier in its lifespan. 

Here’s how each has traditionally worked.

MACRS (Modified Accelerated Cost Recovery System) depreciation is a more spread-out type of depreciation. It allows businesses to deduct a portion of the value of their asset over the course of several years (5 years for solar). 

Example: A business installing a $100,000 solar system would deduct a set percentage of the cost from its taxable income in year one, another percentage in year two, another in year three, and so on. 

For years, MACRS depreciation and bonus depreciation were used together for solar projects. Businesses would take a large portion of the cost (such as 60%) off in the first year through bonus depreciation, then recoup the rest of their savings through MACRS depreciation over the next few years.

Now, 100% bonus depreciation on solar is eliminating the need for MACRS depreciation. This gives businesses the full tax benefit much sooner. 

The largest opportunity for businesses to install solar comes from the combination of bonus depreciation and the federal solar Investment Tax Credit. 

Together, they are able to offset about 50% of the project’s cost in the first year:

• The federal tax credit provides a 30% dollar-for-dollar tax credit on the total cost of their project.
• Businesses can then receive 100% bonus depreciation on the remaining solar project cost, minus half of the tax credit’s value (15% of the total cost).

For example: 

• A business installing a $100,000 solar project would receive $30,000 (30%) through the solar Investment Tax Credit. 
• The business would then be eligible to receive depreciation on 85% of the total project cost. For a $100,000 solar project, that means $85,000 would be eligible. 
• If they fall under the 21% federal corporate tax rate, that would be $17,850 in savings. 

Combined with the $30,000 tax credit, the full savings would be $47,850 – nearly half of the project cost.

It depends where you live. Some states have the same rules as the federal government for claiming bonus depreciation on state income taxes (known as “rolling conformity”). 

For example, under current law, if you’re installing a solar project in Iowa that qualifies for the solar tax credit, you can also deduct 85% of the value from your taxable income on state taxes because Iowa’s tax system follows federal guidelines for depreciation.

Other states have separate depreciation rules. Speaking with your tax advisor is essential here, as a growing number of states have been “decoupling” their tax codes from the federal depreciation rule following the passage of the OBBBA.

Legislation has been changing rapidly, so it’s important to know what the current status is in your state. 

The following Midwestern states currently follow federal depreciation rules for solar projects:

• Iowa
• Kansas
• Missouri
• Nebraska

These Midwestern states do not fully follow federal depreciation rules:

• Illinois
• Minnesota
• Wisconsin

While 100% bonus depreciation is set to continue indefinitely, the 30% federal tax credit is quickly going away. That makes acting now essential for businesses that are looking to capitalize on the optimal time to go solar. 

Businesses need to begin construction on solar projects by July 4 of 2026 in order to ensure they will be eligible for the tax credit. 

This ensures they have until the end of 2030 to have their qualifying solar system placed in service. Following this “safe harbor” date, the timeline to qualify for the tax credit decreases rapidly. Projects that begin construction after July 4 must be placed in service by the end of 2027. 

Starting your project early ensures that any delays due to permitting, the supply chain, or weather will not hurt your ability to secure the 30% federal tax credit. Contact a solar specialist at 1 Source Solar today to see how you can lock in your solar project by the deadline.