Depreciation

Depreciation is the process of writing off a long-term asset's cost over time for tax purposes. For commercial solar buyers — businesses, property owners, and other off-takers who purchase a system via cash or loan — depreciation generates a tax benefit by reducing taxable income in the years following installation.

Depreciation applies to commercial projects only. It is not available for residential projects, and it only applies to purchase financing (cash or loan). Leased systems and PPAs are owned by the third-party provider, who takes the depreciation benefit rather than the customer.

In this article:

• Depreciation methods in Aurora
• How to configure depreciation settings
• How to view the depreciation benefit
• How to set default tax rates
• FAQ

Depreciation methods in Aurora

Aurora supports three depreciation options for commercial projects:

No depreciation

Select this option if the off-taker does not intend to depreciate the system. Not recommended for most commercial projects — without depreciation, the buyer incurs the full system cost in the purchase year with no offsetting tax benefit in subsequent years.

Straight-line depreciation

The system cost is written off in equal annual installments over the selected recovery period. Aurora supports 5-, 15-, and 20-year straight-line schedules.

Straight-line depreciation is simpler but results in a lower first-year tax benefit compared to MACRS. It is less common in commercial solar due to the financial advantage of front-loading depreciation.

MACRS (Modified Accelerated Cost Recovery System)

MACRS front-loads depreciation — a larger percentage of the system cost is written off in the early years, reducing taxable income sooner and improving early-year cash flows. Aurora supports 5-, 7-, 15-, and 20-year MACRS schedules.

Historically, 5-year MACRS was the most common choice for commercial solar in the United States. However, legislation signed in July 2025 (the One Big Beautiful Bill Act) removed solar energy property from the 5-year MACRS classification for projects beginning construction after December 31, 2024. Most commercial solar projects for 2025 and beyond instead use 100% bonus depreciation (see below), which provides an equivalent or better first-year deduction.

For projects that began construction before January 1, 2025, 5-year MACRS remains applicable and Aurora's MACRS options still support these configurations.

Your customer should consult a tax professional to confirm the applicable depreciation method and recovery period for their specific project and tax situation. Tax laws governing solar depreciation have changed significantly in recent years. Aurora's financial model uses the method you configure as an input — it does not provide tax advice.

Bonus depreciation

Bonus depreciation allows a business to deduct a large percentage of the system cost in the first year of service, rather than spreading deductions over a multi-year schedule. The rate available has changed significantly under recent legislation:

For most commercial solar projects placed in service after January 19, 2025, 100% bonus depreciation allows the full depreciable basis to be deducted in year one. This is typically more advantageous than multi-year MACRS for businesses with sufficient tax liability.

⚠️  Tax laws governing solar depreciation have changed significantly. Always confirm the applicable rate with a tax professional or the IRS before configuring this setting for a customer proposal. The IRS issued interim guidance (Notice 2026-11) in January 2026 clarifying OBBBA bonus depreciation rules.

Some states, including California, New York, and New Jersey, do not conform to federal bonus depreciation rules and require separate state-level depreciation calculations. The state tax benefit from depreciation may therefore differ significantly from the federal benefit — a tax professional can advise on state-specific treatment.

How to configure depreciation settings

Depreciation settings are configured on the Financing page in Sales Mode, on a per-project basis.

1. Open the project in Sales Mode.
2. Navigate to the Financing page (the Bank icon in the top nav).
3. Click the gear icon in the upper right to open Advanced financing settings.
4. Click Edit.
5. Under the Commercial section, locate the National depreciation and Local depreciation fields.
6. Select the depreciation method from the dropdown: No depreciation, Straight line, or MACRS.
7. If you selected straight-line, choose the recovery period (5, 15, or 20 years). If you selected MACRS, choose the recovery period (5, 7, 15, or 20 years).
8. If applicable, configure bonus depreciation separately.
9. Click Save.

For most commercial solar projects placed in service after January 19, 2025, 100% bonus depreciation is available and typically produces the most favorable first-year tax benefit. Consult a tax professional to confirm the correct configuration for each project.

To set a default depreciation method for all new commercial projects, an admin can configure the default in Settings > Financing > Pricing & financing under the Commercial settings section.

How to view the depreciation benefit

The depreciation benefit is not displayed as a line item in the Sales Mode UI. To see the full year-by-year depreciation schedule and tax benefit, export the financial analysis to Excel:

1. Navigate to the Financing page in Sales Mode for the design you want to review.
2. Click Export XLSX in the upper right.
3. Open the downloaded file.
4. Go to rows 52 and 53 — these display the Depreciable Basis of the design.

To calculate the total depreciation tax benefit from the depreciable basis:

Depreciation benefit = Depreciable Basis × Applicable tax rate

Example: If the national tax rate is 21% and the Depreciable Basis is $1,661,682.60:

$1,661,682.60 × 0.21 = $349,053 estimated federal depreciation benefit

The depreciation benefit shown in the XLSX is an estimate based on the tax rates configured in Settings > Utility and tax rates. Aurora's model is a financial planning tool — the actual tax benefit realized will depend on the customer's specific tax situation and should be confirmed with a tax professional.

How to set default tax rates

Depreciation cannot calculate without national and local tax rates configured at the account level. If the depreciation benefit appears as zero, check that an admin has set the tax rates for commercial projects.

1. Go to Settings > Utility and tax rates.
2. Select the Commercial tab.
3. Click Edit.
4. Enter the National (federal) tax rate and Local (state) tax rate as percentages.
5. Click Save.

See Utility and Tax Rates: Account Configuration for full instructions.

Depreciable basis and the ITC

When a project also qualifies for an investment tax credit (ITC), the depreciable basis must be reduced. Under IRS rules, the depreciable basis is reduced by 50% of the ITC amount received. This is handled automatically by Aurora's financial model when both an ITC incentive and a depreciation method are configured.

Example: A $2,000,000 commercial project that qualifies for a 30% ITC ($600,000) would have a depreciable basis of:

$2,000,000 − (50% × $600,000) = $1,700,000 depreciable basis

FAQ

Why doesn't depreciation appear in the Sales Mode proposal?

Depreciation is modeled as a tax implication in Aurora's financial engine, not as an incentive line item. It affects the NPV and cashflow outputs but does not appear as a named line item in the Sales Mode UI or Web Proposal. The depreciation schedule and benefit are only visible in the exported XLSX file.

Why is the depreciation benefit showing as zero?

The most common cause is missing tax rates. Depreciation requires national and local tax rates to be configured under the Commercial tab in Settings > Utility and tax rates. Check these settings and re-run the financial analysis after updating them.

Which MACRS schedule should I recommend to commercial customers?

For projects beginning construction before January 1, 2025, 5-year MACRS was the standard for most US commercial solar. For projects after that date, 100% bonus depreciation (which replaced 5-year MACRS under the OBBBA) is typically more favorable. The applicable method depends on the project timeline and the customer's specific tax situation. Always direct commercial customers to a tax professional for guidance.

Does depreciation apply to storage systems?

Yes. When a storage system is included in a commercial project, the battery is generally included in the depreciable basis as part of the total system cost. The ITC and depreciation treatment for storage may differ from solar — consult a tax professional for project-specific guidance.

Related articles

• Financial analysis: Overview
• Utility and Tax Rates: Account Configuration
• Advanced financing settings
• Pricing and Financing Defaults — Account Configuration