Businesses rely on policy certainty to make long-term investment decisions. SEIA supports smart tax policy that drives continued innovation in the solar industry. Depreciation is one aspect of the tax code that facilitates greater investment in renewable energy and ultimately lower costs for consumers. 

• The Modified Accelerated Cost Recovery System (MACRS), established in 1986, is a method of depreciation in which a business’ investments in certain tangible property are recovered, for tax purposes, over a specified time period through annual deductions.
• Qualifying solar energy equipment is eligible for a cost recovery period of five years.
• The market certainty provided by MACRS has been found to be a significant driver of private investment for the solar industry and other energy industries.

The U.S. tax code allows for a tax deduction for the recovery of the cost of tangible property over the useful life of the property. The Modified Accelerated Cost Recovery System (MACRS) is the current depreciation method for most property. The market certainty provided by MACRS allows businesses in a variety of economic sectors to continue making long-term investments and has been found to be a significant driver of private investment for the solar industry and other energy industries.

The Modified Accelerated Cost Recovery System (MACRS), established in 1986, is a method of depreciation in which a business’ investments in certain tangible property are recovered, for tax purposes, over a specified time period through annual deductions. MACRS is the method of depreciation used for most property, though assets vary by class, which determines the depreciable life, or cost recovery period, of the property. Class depreciation timeframes vary between three and 50 years, depending on the certain type of property. Some examples of classes include television and radio broadcasting equipment, which qualify for a cost recovery period of five years and office furniture and equipment, which qualify for a cost recovery period of seven years.

Qualifying solar energy equipment is eligible for a cost recovery period of five years. For equipment on which an Investment Tax Credit (ITC) grant is claimed, the owner must reduce the project’s depreciable basis by one-half the value of the 30% ITC. This means the owner is able to deduct 85 percent of his or her tax basis.

Various other renewable energy technologies also qualify for a five-year cost recovery period, including wind energy property, geothermal, fuel cells, and combined heat and power technology.

MACRS depreciation is an important tool for businesses to recover certain capital costs over the property’s lifetime. Allowing businesses to deduct the depreciable basis over five years reduces tax liability and accelerates the rate of return on a solar investment. This has been a significant driver for the solar industry and other energy industries.

Accelerated depreciation, along with other successful energy tax incentives such as the Investment Tax Credit (ITC), has helped fuel unprecedented growth in annual solar installations.

In response to the economic downturn of 2008, Congress took action to further incentivize capital investment by accelerating the depreciation schedule economy-wide. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 allowed companies to claim a 100% depreciation bonus on qualifying capital equipment purchased and placed in service by December 31, 2011. Congress included an extension of 50% bonus depreciation in early 2013 in the so-called “fiscal cliff” deal, which was scheduled to expire at the end of 2013. Under 50% bonus depreciation, in the first year of service, companies could elect to depreciate 50% of the basis while the remaining 50% is depreciated under the normal MACRS recovery period.

At the end of 2014, Congress passed a retroactive extension of 50% depreciation such that companies that placed qualifying equipment in service through December 31, 2014 were eligible for 50% bonus depreciation. In December 2015, Congress passed the Protecting Americans from Tax Hikes Act of 2015, which included a 5-year extension of bonus depreciation, including a phase-out that is structured as follows: 2015-2017: 50% bonus depreciation; 2018: 40%; 2019: 30%, 2020 and beyond: 0%.

The Tax Cuts and Jobs Act of 2017 (TCJA) increased the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. The bonus depreciation percentage for qualified property that a taxpayer acquired before Sept. 28, 2017, and placed in service before Jan. 1, 2018, remains at 50 percent. Special rules apply for longer production period property and certain aircraft.

The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after Sept. 27, 2017, if all the following factors apply:

• The taxpayer didn’t use the property at any time before acquiring it.
• The taxpayer didn’t acquire the property from a related party.
• The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.
• The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
• The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.

Also, the cost of the used qualified property eligible for bonus depreciation does not include any carryover basis of the property, for example in a like-kind exchange or involuntary conversion.

Under the new law, certain types of property are not eligible for bonus depreciation. One such exclusion from qualified property is for property primarily used in the trade or business of the furnishing or sale of:

• Electrical energy, water or sewage disposal services,
• Gas or steam through a local distribution system or
• Transportation of gas or steam by pipeline.

This exclusion applies if the rates for the furnishing or sale have to be approved by a federal, state or local government agency, a public service or public utility commission, or an electric cooperative.

The end of NJ's SREC program and the transition to TRECs occurred in March 2020. TRECs are now created in New Jersey to provide incentives for all solar systems certified under the current Transition Incentive (TI) Program. This platform allows homeowners and aggregators to obtain payments from the electric utilities in NJ for generation reported to GATS.

In December of 2019, Transition Renewable Energy Certificates were introduced as a way to receive incentives for your solar power production. Depending on the type of solar generation system you have installed on your home, you will receive a set megawatt per hour price for the power created by the solar panels. In 2020, that price was set at $152 for each TREC you have for a period of fifteen years.

TRECs are earned based on the amount of kilowatt hours your solar panels produce. Therefore, if you add 12,000 kWh to the electrical grid, you get twelve TRECs. At $152 each, this would give you an annual savings of $1824 for a commercial building and $1904 for a residential building, as they only earn a percentage of the certificates. This example gives a very general idea of the type of money you could receive with the NJ TREC program. Course, the actual amounts depend on your system, how much sun you get, and other factors.

In order to take advantage of this lucrative program, you do need to register your energy generating system with the NJ Generation Attribute Tracking System (GATS). The company that installed the panels can give you all necessary information about the type of photocells and the size of the overall system. Create an irrevocable standing order, register for the TREC payments, and sit back and let the money roll in.

Help From the New Jersey Clean Energy Program

When it comes to affordability for alternative energy systems, New Jersey solar incentives offer multiple benefits that make the decision to order solar installation easier. The TREC program presents the best savings on a long-term basis. Of course, you will also save on your monthly energy bills as you produce free electricity from the sun. With these incentive certificates, the savings add up even more, and you will pay back the initial installation price of the entire system more quickly.

New Jersey has big goals when it comes to transitioning to alternative energy sources. Solar tops the list for changes for both residential and commercial planning. The incentives including this certificate program, property tax increase waivers, and other financial benefits make solar installations wise choice in the state.

Step 1: Create an account with the PJM-EIS Generation Attribute Tracking System (GATS)

• Go to https://www.pjm-eis.com/ and navigate to the GATS Sign In section in top left and click “Not a Member? Register Here”. Instructions on creating a GATS account can be found here: GATS Solution Aid – New Account Creation

Step 2: Register your solar facility as a generator with GATS

• Log-in to PJM GATS and under Assets select “Register Solar Photovoltaic Generator”. Instructions on registering a solar facility can be found here: GATS Solution Aid – Registering a Generator. Participants must provide the system’s array details and NJ State Certification Number provided on the NJCEP approval letter. If you do not have the required information, please contact your installer directly. Please be advised this can take 3-4 business days to be approved. Once approved, a GATS Unit ID will be issued.

For questions regarding Step 1 & Step 2, please contact the GATS admin staff directly by phone at 1-877-750-4287 or via email at gatsadmin@pjm-eis.com.

CHANGE IN PROCESS: Starting on September 23, 2021, an irrevocable standing order will be automatically created for all newly approved TREC-eligible GATS generators. As a result, participants registering those facilities may skip Step 3 and complete Step 4 to finalize the TREC payment registration process. TREC-eligible GATS generators approved prior to this date will still need to manually create a standing order as detailed below.

Step 3: Create an Irrevocable Standing Order in GATS for “Solar Incentives NJ Program”

• Log-in to PJM GATS and under Certificates select “Create Standing Orders”. Instructions on completing a standing order can be found here: GATS Solution Aid – Creating Standing Orders. The Account Holder the standing order should be sent to is “Solar Incentives NJ Program”. Type “Incentives” in the search box and click Find for the program account to display. When creating the standing order, please be sure to leave the “To” field as “(No end date)” and check the “Irrevocable” box before clicking the Save button.

Step 4: Register for TREC payments

• Click “Register” in the top right of this page.
• Create an account with appropriate contact info and click the activation link sent to you by email.
• Log-in and click “Register a Payment Account” to enter system details and payment information.

Participants can find more information about this process under the program’s FAQs and Resources pages.

The TREC Payment Program is now administered through the Solar Incentives NJ platform which includes Successor Solar Incentive (SuSI) payments. The portal has been moved from https://portal.trecsnj.com to https://portal.solarincentivesnj.com. All participant log-in credentials and payment applications were automatically transferred to the new portal on December 2, 2021. Please note both portals are managed by the TREC/SREC-II Program Administrator, InClime Inc., and links on the TRECSNJ website may re-direct to the Solar Incentives NJ website.