MACRS stands for Modified Accelerated Cost Recovery System, which is a depreciation system used for tax purposes that allows businesses to deduct the capitalized cost of an asset over a specified period via annual deductions.

Renewable energy property, such as solar panels, can qualify for MACRS depreciation over a five-year period, which reduces tax liability and accelerates the rate of return on a solar investment.

In addition, renewable energy property can also benefit from the Investment Tax Credit (ITC), which is a federal tax credit that allows a deduction of a percentage of the cost of installing a solar energy system from the federal income taxes of residential and commercial customers. The ITC is currently 30% for solar systems placed in service after 12/31/2022.

For example, suppose a commercial building installs a solar energy system that costs $1,000,000 in 2023. The building owner can claim an ITC of 30% of the cost, which is $300,000. The owner can also claim MACRS depreciation on half of the remaining cost basis of $850,000 ($1,000,000 - $150,000) over five years.

The depreciation deductions for each year are calculated using a specific percentage provided by the IRS. For example, in the first year, the depreciation deduction is 20% of the cost basis, which is $170,000 ($850,000 x 0.2). The depreciation deductions reduce the taxable income of the owner and thus lower their tax liability.