There was a lot of press in December about the extension of the Section 1603 Treasury Grant program in the landmark tax legislation that passed in December, but not too much fanfare about the depreciation benefits for renewable energy, including photovoltaics. They depreciation incentives were not only extended, but were also expanded.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 signed into law included 100% first-year bonus depreciation for certain commercial renewable energy projects placed in service September 9, 2010 (retroactively) through December 31, 2011. The Economic Stimulus Act of 2008 had first put into place 50% first-year bonus depreciation for qualified renewable energy projects put in service in 2008. The American Recovery and Reinvestment Act of 2009 then extended the 50% first-year bonus depreciation for the 2009 tax year. It was restored again for 2010 through the Small Business Jobs Act of 2010.
So what does this mean? Instead of depreciating a solar photovoltaic (PV) installation over its typical depreciation schedule of 5 years under MACRS, the cost of the project can be depreciated in the same year that it is placed into service. However, f the property is placed in service between January 1, 2012 and December 31, 2012, the first-year bonus depreciation is stepped back down to 50%.
In order to be eligible for bonus depreciation, the project must fulfill the following requirements:
- The property must have a recovery period of 20 years or less under normal federal tax depreciation rules.
- The original use of the property must commence with the taxpayer claiming the deduction.
- The property must be acquired between 2008 and 2012.
- The property must be placed in service between 2008 and 2012.
Calculation of the Depreciation Benefit
If the owner of a PV system takes the federal investment tax credit (or grant), he must reduce the depreciable basis by one-half of the tax credit total. The federal tax credit (or grant) for photovoltaic installations is equal to 30% and one-half of that would be 15%. Therefore, you would be able to depreciate 85% of the total cost of the system in the first year if the system is placed into service by December 31, 2011. Given the time value of cash, system owners will see significant tax benefits by depreciating the entire system in the first year – the more a company can expense; the less they have to pay in taxes for that year. For more information, please consult a tax professional.
Between federal tax and depreciation benefits coupled with state and utility incentives, there has never been a better time to invest in a commercial solar installation. Brightstar Solar is a licensed solar installer servicing Massachusetts and Connecticut. We work with our customers to help navigate the installation process, maximize incentives, and manage all of the rebate and permitting paperwork involved. If you have a home or business in Massachusetts or Connecticut and are interested in solar power, please contact us for a free evaluation.