Bonus depreciation and solar in 2026: 100% expensing, the basis haircut, and the passive loss limits

By the Tax Field Guide editorial team. Published 2026-10-26. Facts checked 2026-10-26. Related strategies: Solar Investment Credits, Accelerated Depreciation.

Education only; not tax, legal or investment advice. Tax rules change, and how they apply depends on your facts. No outcome is guaranteed.

Solar equipment pitches often combine two federal benefits: the investment tax credit and a large first-year depreciation deduction. Both are real. How much of either you can actually use is a separate question.

100% bonus depreciation is back

Public Law 119-21 restored a 100% special depreciation allowance ("bonus depreciation") for qualified property acquired and placed in service after January 19, 2025, and the IRS has issued guidance on it.¹² Taxpayers can elect a lower percentage for the first tax year ending after January 19, 2025.²

The basis haircut for the credit

If you claim the investment tax credit, you generally reduce the property's depreciable basis by 50% of the credit.³ So on $100 of qualifying cost with a 30% credit, depreciation is figured on $85, not $100.

Five-year property, with a wrinkle

Qualified property that is a qualified investment for the §48E credit is listed as five-year MACRS property.⁴⁵ Separately, Public Law 119-21 removed older §48 "energy property" from the five-year class for solar and wind property beginning construction after December 31, 2024.⁵ If someone quotes you a recovery period, ask which credit section the equipment qualifies under and when construction began.

Can the loss offset my wages?

Usually that is where the plan breaks down:

Passive activity rules. If you do not materially participate, the depreciation loss is passive and generally offsets only passive income; the rest carries forward.⁶ See the passive activity rules.
At-risk rules. Losses are limited to the amount you have at risk.⁷
Excess business loss limit. Even non-passive business losses above an annual threshold are disallowed for the year and carried forward as a net operating loss (§461(l)).⁸

Selling later: recapture

Depreciation claimed on equipment is generally recaptured as ordinary income when it is sold (§1245), and the credit itself can be recaptured if the equipment is disposed of within five years (§50).⁹³

State conformity

Not every state follows federal bonus depreciation. California, for example, does not conform to §168(k).¹⁰ See the California page.

Common questions

Can I take 100% bonus depreciation on solar panels in 2026?

Qualified property acquired and placed in service after January 19, 2025 is eligible for 100% bonus depreciation under current law, but depreciable basis is reduced by 50% of any investment tax credit claimed, and passive, at-risk and excess business loss limits decide whether the deduction is usable this year.

Does claiming the solar tax credit reduce my depreciation?

Yes. The depreciable basis is generally reduced by half of the credit claimed.

Education only; not tax, legal or investment advice. Talk to a qualified professional before acting.

Sources

IRS Notice 2026-11 (100% bonus depreciation, property acquired after Jan. 19, 2025), https://www.irs.gov/pub/irs-drop/n-26-11.pdf
IRS Publication 946, How To Depreciate Property, https://www.irs.gov/publications/p946
26 U.S.C. §50 (basis adjustment §50(c)(3); recapture §50(a)), https://www.law.cornell.edu/uscode/text/26/50
IRS, Cost recovery for qualified clean energy facilities, property and technology, https://www.irs.gov/credits-deductions/cost-recovery-for-qualified-clean-energy-facilities-property-and-technology
26 U.S.C. §168(e)(3)(B), https://www.law.cornell.edu/uscode/text/26/168
IRS Publication 925, Passive Activity and At-Risk Rules, https://www.irs.gov/publications/p925
26 U.S.C. §465, https://www.law.cornell.edu/uscode/text/26/465
26 U.S.C. §461(l), https://www.law.cornell.edu/uscode/text/26/461
26 U.S.C. §1245, https://www.law.cornell.edu/uscode/text/26/1245
California FTB, 2025 Instructions for Form FTB 3885 (lists IRC §168(k) among federal provisions California does not follow), https://www.ftb.ca.gov/forms/2025/2025-3885-instructions.html

Professionals whose public pages show they offer a strategy covered here. Listed by number of matching strategies, then name. A listing is not a recommendation or an endorsement; see how advisors are listed, and how to vet any advisor.