STAGING ENVIRONMENT

Solar Ownership for Individual Investors

Own a solar project. Capture the new tax benefits.

Two things changed recently. The 2025 tax law (the One Big Beautiful Bill, “OB3”) brought back 100% first-year depreciation and kept clean-energy tax credits sellable for cash. And American demand for electricity is growing faster than it has in a generation. Together, they make it practical for an individual investor — not just a bank — to own a working solar project and capture tax benefits your CPA already understands from real estate.

100% year-one depreciation (OB3) Tax credits sell for cash (§6418) Rising demand for power
Why now

Two changes made this moment.

Neither of these is a loophole. One is a deliberate act of Congress; the other is the grid catching up with the economy.

The tax law changed

OB3 (signed July 2025) permanently restored 100% first-year depreciation for business equipment — the owner can write off the full cost the year the asset goes to work. Separately, since 2023 the tax code lets the owner of a clean-energy project sell its federal tax credit to an unrelated company for cash. Both benefits are explained in plain English below.

Demand for electricity is climbing

After two flat decades, U.S. power demand is rising again — data centers, AI, and the electrification of everything from cars to heat. New generation is being contracted years in advance, and solar is among the fastest and cheapest capacity to build. That demand is what stands behind the power contracts these projects sell into.

Step back — the basics

How a solar project makes money.

Before any structure or math: a solar project is a small power business. It has three sources of value, and each one is simple on its own.

1

It sells power (the PPA)

The system generates electricity and sells it to a customer — a business, a school, a utility — under a long-term contract called a power purchase agreement. That contract is the project's revenue, typically locked in for 15–25 years.

2

It earns a tax credit

To encourage new power generation, the federal government grants the project an investment tax credit (ITC) — 30% of the system's cost, and 40–50% with bonuses for location and U.S.-made equipment. It's earned once, when the system starts producing.

3

It depreciates

The equipment is a business asset, so its owner deducts the cost — depreciation. Under OB3, the whole write-off lands in year one. This is the same concept your CPA uses on rental real estate, just bigger and faster.

Not paper — hardware

An investment you can drive to.

You own an entire, specific system: racking, panels, inverters, and a meter at a street address — not a unit in a fund. It produces power you can watch in a monitoring app and sells it under a contract you can read. If you want to inspect your investment, you get in the car.

The tax side, in plain English

Depreciation and tax credits — the two benefits, separately.

These are the two tax benefits a project generates. They are different animals, and understanding each on its own makes the structure below obvious.

Depreciation — the part your CPA knows from real estate

When a business buys a building or equipment, the IRS lets the owner deduct the cost over time, because assets wear out. Real estate investors live on this: buildings depreciate over 27.5 or 39 years, and cost-segregation studies pull deductions forward. Solar is the same idea on a faster clock — under OB3, the owner deducts 100% of the depreciable basis in the first year. A deduction reduces taxable income, so its cash value is the deduction times your tax rate.

Tax credits — earned by projects, bought by corporations

A credit is stronger than a deduction: it cuts the tax bill itself, dollar for dollar. A solar project earns its ITC by being built and placed in service. And since 2023, the owner can sell the credit for cash to an unrelated company under §6418. Profitable corporations — insurers, banks, large retailers — buy them at roughly 85–90 cents on the dollar. That market matters here: the credit turns into cash even if you never use it on your own return.

The structure

Sell the credit. Keep the depreciation.

Now put the pieces together. The two tax benefits don't have to stay with the same owner — and the credit is worth more to a large corporation than it is to you. So you monetize the credit for cash up front and keep the depreciation, the benefit that's actually built for an individual taxpayer. In effect, you're buying one thing: the depreciation.

1

Own the whole system

You buy an entire solar system — a specific project, not a share of a fund. Depreciation belongs to the owner of the machine, and that owner is you. Placed in service, it generates a federal ITC plus a depreciable asset.

2

Sell the credit for cash

Under §6418 the ITC transfers to an unrelated corporation for cash — buyers typically pay 85–90¢ on the dollar depending on credit quality and size. Those proceeds fund the project, which is why your contribution is a fraction of the system cost.

3

Keep the depreciation

You write off the system's basis in year one under 100% bonus depreciation. When you materially participate in the project, that deduction shelters many forms of income — including W‑2 and business income.

“All I bought was the depreciation.” A CPA understands buying a business asset and writing it down. Selling the credit removes the part that creates confusion — and the part that AMT can trap.
Two ways to take the benefit

Why selling the credit wins in 2026.

An individual can keep and use the credit. But in 2026 that path runs into the alternative minimum tax — and a trapped credit is worse than a smaller, certain one.

Path A

Keep & use the credit

Own it, claim the ITC and the depreciation yourself
  • Captures the full face value of the credit if you can use it
  • Requires more cash into the deal up front
  • In 2026 the credit can be limited by AMT / tentative minimum tax for many individuals*
  • A credit you can't use is captive — it rolls forward year after year with your cash tied up
Best only when the investor has confirmed capacity to absorb the credit against regular tax.
Path B

Sell the credit, keep the depreciation

Transfer the ITC for cash; hold the year-one write-off
  • Less cash into the deal — credit proceeds arrive the same year
  • Depreciation is not subject to the AMT trap that limits the credit*
  • Keeps 100% year-one depreciation to shelter income (with material participation, it can offset active/W‑2 income)*
  • Removes the AMT/TMT screening question that is ~95% of the complexity
The simpler, more certain structure for high-income individual investors in 2026.
Now the math — 1 MW, illustrative only

A 1 MW system — what you put in and what comes back.

With the pieces in place, here are the numbers. This is an illustrative example only, using a 1 MW system: a $3.0M system cost, a 50% ITC (30% base plus adders; 40–50% depending on the project), a 99% ownership allocation, 100% bonus depreciation, and a 37% marginal rate. Every actual transaction is priced on its own facts. The calculator below is live.

Depreciable basis$3.0M system cost − ½ of the $1.5M ITC
$2,250,000
Your depreciation share99% ownership allocation × $2,250,000
$2,227,500
Year-one depreciation tax savings$2,227,500 × 100% bonus × 37%
$824,175
≈ Year-one after-tax multiplebenefit received per dollar contributed
1.32×
Your contributionper 1 MW system — the only cash you fund
$625,000

The investor's deal at a glance

Example system (1 MW)
$3,000,000
Your contribution
$625,000
ITC (50%) — sold, not kept
$1,500,000
Your benefit: depreciation deduction
$2,227,500
Tax savings at 37%
$824,175
≈ Year-one after-tax multiple
1.32×
Hold period (ITC recapture window)
5 years

You contribute $625,000 and your return is the year-one depreciation deduction — roughly $824,175 of tax savings at a 37% rate. The credit is sold to a corporate buyer and its cash goes straight into the purchase; project financing covers the balance of the system cost. All figures are illustrative for a 1 MW example and are set deal by deal.

Active owner — the assumption on this page

These figures assume you materially participate in the project (the IRS's test for genuinely running the business) and hold a 99% ownership allocation. On that footing the deduction is non-passive: it can offset wages, business income, and other ordinary income on your return.

Passive owner — different rules

Without material participation the deduction is passive under Section 469 and can only offset passive income — rental income, other passive K‑1 income. Unused amounts don't disappear; they carry forward. Which side you're on is a facts-and-circumstances question for your tax advisor.

Run your own numbers

Tax investor calculator.

See it from your seat only: what you contribute, and the depreciation benefit that contribution buys. All figures are illustrative, scaled from a 1 MW example.

Illustrative arm's-length cost for a 1 MW system. Drives the credit and depreciation.
The only cash you fund. Project financing covers the rest of the system cost.
30% base + adders; 40–50% typical depending on the project. The credit is sold; it still reduces depreciable basis by half its amount.
Rate the depreciation deduction offsets (37% individual, 21% corporate).
100% is permanent under OBBBA for property placed in service after Jan 19, 2025.

Your side of the deal

$824,175
year-one depreciation savings on a $625,000 contribution · 1.32×
Your contribution$625,000
Depreciable basis (cost − ½ ITC)$2,250,000
Your share (99% allocation)$2,227,500
Depreciation tax savings (year one)$824,175
≈ Year-one after-tax multiple1.32×
* Illustrative only — not tax, legal, or investment advice. Whether a transferred credit is limited by the alternative minimum tax (AMT) or tentative minimum tax (TMT), and how passive-activity rules apply, depends on the individual investor's facts and should be confirmed with a qualified tax advisor. Depreciation deductions using bonus depreciation are not subject to a separate AMT depreciation adjustment, but overall deductibility still depends on your circumstances (including passive-activity and at-risk rules). Figures assume the system is placed in service in 2026 under current law.
Step two

See if it fits your tax picture.

The math above only pays if the deduction has income to land on. Our income qualification guide walks through the ownership paths, the passive-activity rules, and AMT for your situation before you talk to your advisor.

Plain-English glossary

The terms to bring to your tax advisor.

A recap of the concepts above, each linked to the IRS's own explanation.

Depreciation (MACRS & bonus)

Depreciation is the IRS letting an owner deduct the cost of equipment because machines wear out. MACRS is the standard schedule that spreads the deduction over several years; 100% bonus depreciation lets a solar owner take all of it in year one.

The tax credit & the §6418 sale

A tax credit is a coupon that cuts a tax bill dollar for dollar. Since 2023, clean-energy owners can sell that coupon to a corporation for cash — the §6418 transfer. That cash is why your contribution is a fraction of the system price.

Material participation

The IRS test for whether you genuinely run a business — roughly 500 hours a year of real, documented involvement. Pass it and the deduction can offset wages and business income; without it, the deduction offsets only passive income.

Buying a whole project

You own an entire, specific solar system — not a unit of a fund. The deduction belongs to the owner of the machine, which is what makes the depreciation yours, and material participation is what makes it usable against many forms of income.

See the worked example above
What changed for 2026

The rules this structure relies on.

100% bonus depreciation is back — permanently

OBBBA restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025, with no scheduled phase-down. The full depreciable basis can be written off in year one.

One Big Beautiful Bill Act · IRC §168(k)

Solar's 5-year MACRS class was repealed

For solar/storage where construction begins after Dec 31, 2024, OBBBA removed the 5-year MACRS designation. In practice the year-one write-off now comes from 100% bonus depreciation rather than the accelerated MACRS schedule.

OBBBA · IRC §168(e)

The credit is transferable for cash

Section 6418 lets you sell the ITC to an unrelated taxpayer for cash. The payment is not taxable income to you and not deductible to the buyer; the election is irrevocable.

AMT traps the §48E credit, not depreciation

The §48E credit is not a “specified credit,” so it can't reduce an individual's tax below the AMT floor — and OB3 widens AMT in 2026, trapping the credit for many high earners. Depreciation has no equivalent AMT limit, which is why the individual keeps it and sells the credit to a corporate buyer (outside AMT — the clean home for it).*

IRC §38(c)(4) / §55 · confirm with advisor
Important disclosures

Read before acting on anything above.

Not tax, legal, or investment advice. Nothing on this page is tax advice, legal advice, or investment advice, and nothing here is a recommendation to enter into any transaction. Deal Star is not a law firm, accounting firm, or registered investment adviser. Consult your own tax advisor and attorney before acting.

Illustrative example only. All figures on this page describe a hypothetical 1 MW system and are illustrative. System cost, credit rate, contribution amount, depreciation, and returns are set transaction by transaction and will differ from the example. No outcome is promised or guaranteed.

Your results depend on your facts. Whether depreciation deductions are usable in year one depends on your income mix, participation, at-risk amounts, and passive-activity position under Section 469; credit usability depends on AMT/tentative-minimum-tax position. Unusable amounts generally carry forward rather than disappear, which changes timing and value.

Tax positions require substantiation. Credit rates and bonus depreciation depend on facts that must be documented for each project — eligible basis and cost allocation, appraisal, placed-in-service dates, prevailing-wage and apprenticeship compliance, energy-community and other adder qualification, and sourcing rules. Positions may be examined by the IRS, and credits are subject to recapture for five years.

Not an offer. This page does not constitute an offer to sell or a solicitation of an offer to buy any security or investment. Any transaction would be made only through definitive documents with full disclosures.