Modified Accelerated Cost-Recovery System (MACRS)
Under the Modified Accelerated Cost-Recovery System (MACRS), the federal government permits accelerated depreciation for a number of different renewable energy technologies. For solar, wind and geothermal equipment installed after 1986, the allowable property class is five years. In addition, the federal stimulus legislation of October 2008 and February 2009 includes a one-time, 50 percent bonus depreciation for systems purchased and installed in 2008 and 2009. This 50% bonus depreciation has been extended through January 1st 2018, then drops to 40% for rest of 2018, and 30% for 2019.
For those of you out there who aren't accountants, accelerated depreciation means shortening the useful life of a piece of capital as it's recorded for tax purposes. While your company will receive cash flows from a solar-energy system for upwards of 20 or 25 years, the total value of that system (in terms of upfront costs) will be taken out of gross income over the five-year period allowed by MACRS. This means that your company will, in effect, have lower taxable dividends for these five years (dividends being a per-share fraction of profits).
While MACRS will reduce income on your company's financial statement, the net result often leads to an improved tax situation. Basically the government allows your company to take full account of accelerated depreciation when determining profits so as to reduce the company's tax liability.
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Accounting Rules on Depreciation