Note: The Consolidated Appropriations Act, signed in December 2015, extended the “placed in service” deadline for bonus depreciation. Equipment placed in service before January 1, 2018 can qualify for 50% bonus depreciation. Equipment placed in service during 2018 can qualify for 40% bonus depreciation. And equipment placed in service during 2019 can qualify for 30% bonus depreciation.
Under the Modified Accelerated Capital-Recovery System (MACRs), businesses may recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. A number of renewable energy technologies are classified as five-year property (26 USC § 168(e)(3)(B)(vi)) under the MACRS, which refers to 26 USC § 48(a)(3)(A), often known as the energy investment tax credit or ITC to define eligible property (details).
The 5-year schedule for most types of solar, geothermal, and wind property has been in place since 1986. The federal Energy Policy Act of 2005 (EPAct 2005) classified fuel cells, microturbines and solar hybrid lighting technologies as five-year property as well by adding them to § 48(a)(3)(A). This section was further expanded in October 2008 by the addition of geothermal heat pumps, combined heat and power, and small wind under The Energy Improvement and Extension Act of 2008.
Bonus Depreciation: The federal Economic Stimulus Act of 2008, enacted in February 2008, included a 50% first-year bonus depreciation (26 USC § 168(k)) provision for eligible renewable-energy systems acquired and placed in service in 2008. The allowance for bonus depreciation has since been extended and modified several times since the original enactment, most recently in December 2014 by the Tax Increase Prevention ActOf 2014 (H.R. 5771, Sec. 125). This legislation extended the “in-service” provision for qualifying property through to December 31, 2014, and thus also did so retroactively for property placed in service after December 31, 2013, through to enactment.
Contact your accounting professional for more information.