How §48E Credits and Bonus Depreciation Work Together in Solar Tax Equity

Renewable energy tax credits have been part of the federal tax code for nearly five decades. In 1978, President Carter signed the Energy Tax Act, creating the first 10% investment tax credit for solar energy property. Since then, energy tax credits have been extended and modified many times with bipartisan support across every administration from Carter through Trump.

But never have they been as valuable, or as accessible, as they are right now.

What the Inflation Reduction Act Changed

In 2022, the Biden administration’s Inflation Reduction Act overhauled the federal energy credit regime. The new §48E clean electricity investment tax credit, which replaced the legacy §48 ITC for projects placed in service after December 31, 2024, significantly expanded both the value and the flexibility of solar investment.

Under §48E, the baseline credit is 30% of the qualifying cost of the project, provided the project either meets prevailing wage and apprenticeship requirements or has a maximum net output of less than one megawatt. For the small commercial rooftop installations most relevant to our clients, the sub-one-megawatt exception means the full 30% rate is available without the prevailing wage complexity.

On top of that 30% base, there are adder credits. A 10% bonus applies to projects located in designated “energy communities,” which include areas with significant employment in fossil fuel industries, brownfield sites, and certain census tracts. A separate 10% bonus applies to projects meeting domestic content requirements for steel, iron, and manufactured components. These adders stack. A project qualifying for both can reach 50% of project cost in tax credits.

Two features of these credits deserve special attention from CPAs.

First, under IRC §39(a)(4), §48E credits can be carried back up to three prior tax years. This is unusual. The general business credit carryback is only one year, and most credits in the tax code allow no carryback at all. A taxpayer who places a solar project in service in 2026 can apply the resulting credits to amend and reduce tax liability for 2023, 2024, and 2025. That means real refund checks for taxes already paid.

Second, under §6418 (another IRA innovation), these credits can be separated from the project and sold to an unrelated buyer for cash. The buyer receives the credit dollar-for-dollar, and the cash proceeds are excluded from the seller’s income. This transferability mechanism has created an entirely new market for energy tax credit transactions. But for investors with sufficient tax liability, claiming the credits directly is typically far more attractive than selling them at a discount.

How Trump-Era Bonus Depreciation Overlays

The One Big Beautiful Bill Act, signed by President Trump on July 4, 2025, restored 100% first-year bonus depreciation for qualified property acquired and placed in service after January 19, 2025. This is the current administration’s flagship pro-business, pro-investment policy, and it interacts powerfully with the Biden-era clean energy credits.

Here is how it works. When a taxpayer claims the §48E credit on a solar project, the depreciable basis of that project is reduced by half the credit amount under IRC §50(c)(3). The remaining basis can then be fully deducted in year one under the restored bonus depreciation.

One additional note on the depreciation classification. The OBBBA also changed the MACRS recovery period for solar energy property. Under prior law, solar was classified as 5-year property under §168(e)(3)(B)(vi). The OBBBA removed solar and wind from that 5-year class for projects beginning construction after December 31, 2024, and solar now falls into the 20-year recovery period. However, because §168(k) bonus depreciation applies to any property with a recovery period of 20 years or less, solar still qualifies for 100% first-year expensing. The year-one deduction outcome is unchanged. This is worth understanding, though, because if Congress ever phases bonus depreciation down again, the underlying 20-year recovery period will matter significantly for how quickly the remaining basis can be recovered.

The result is something like a Venn diagram. Biden-era clean energy credits on one side, Trump-era bonus depreciation on the other, and solar tax equity investment sitting in the overlap. It is one of the most tax-efficient investments available to high-income taxpayers today.

A Concrete Example

Consider a taxpayer who purchases a small commercial solar project (solar panels and battery storage installed on a commercial building like a Best Buy, a church, or a school) for $200,000 fair market value.

The taxpayer invests $100,000 of their own cash and finances the remaining $100,000 with recourse debt. The recourse requirement matters: under IRC §49(a)(1)(D), for the leveraged portion of the investment to be included in the credit base and the depreciable basis, the debt must be recourse to the taxpayer. For the individual investors who make up the majority of our direct-investment tax equity transactions, structuring the leverage as recourse to the investor is essential.

Now the math.

The §48E credit is calculated on the full $200,000 basis. Assuming a 40% credit rate (30% base plus a 10% energy community adder), that produces an $80,000 federal tax credit.

The depreciable basis is $200,000 minus half the credit: $200,000 − $40,000 = $160,000.

With 100% bonus depreciation, the full $160,000 is deducted in year one. At a 37% marginal tax rate, that deduction saves approximately $59,200 in federal income taxes.

Total first-year tax benefits: $80,000 (ITC) + $59,200 (depreciation) = $139,200 against only $100,000 of cash invested.

The tax benefits alone exceed the cash outlay by nearly 40%, and that is before the investor receives any economics from the project itself. The ongoing revenue from selling electricity to the building owner under a power purchase agreement is additional return on top of the tax benefits.

What the Investor Actually Owns

In a direct investment structure, the investor is the full owner of the solar project. They are buying the solar panels and batteries, they own the equipment outright, and they receive all the benefits: the investment tax credit, the depreciation deduction, and the revenue stream from selling electricity to the host building.

This is not a partnership flip, a fund structure, or a syndication. The investor has direct ownership and direct access to every tax benefit. That simplicity, and the transparency it provides, is one of the reasons this structure is attractive to CPAs evaluating it for their clients.

But the Window Is Limited

The OBBBA introduced an accelerated sunset for solar and wind under §48E, and the specifics depend on when the project begins construction.

For projects that begin construction after July 4, 2026, the §48E credit is only available if the project is placed in service by December 31, 2027. Given typical construction timelines for commercial solar, that is a very tight window. And this will apply to the majority of projects going forward.

For projects that begin construction on or before July 4, 2026, the accelerated sunset does not apply. These projects are grandfathered under existing continuity safe harbor rules and have longer placed-in-service deadlines. The beginning-of-construction rules and safe harbor mechanics are critically important for developers and investors planning projects right now, and we will cover them in detail separately.

The combination of §48E credits and 100% bonus depreciation that makes solar tax equity so compelling today has a defined expiration date. For investors and their advisors evaluating this opportunity, the time to act is now. Taxpayers will always be able to buy trucks or software or rental properties and take the depreciation. But none of those investments comes with the government covering 40% or more of the purchase price in tax credits. That incentive structure is unique, and it is finite.

This article is for informational purposes only and does not constitute legal or tax advice. The example above is illustrative and simplified. Actual tax outcomes depend on each taxpayer’s specific circumstances, including applicable passive activity rules, at-risk limitations, alternative minimum tax considerations, and state tax treatment. The §48E prevailing wage and apprenticeship regulations have not yet been finalized under §§48 and 48E specifically. Consult a qualified tax professional before making investment decisions.