Bonus depreciation for renewable energy projects completed in 2008

Solar Daily: Late last week Congress passed the Economic Stimulus Package of 2008 (the Act), which President Bush is expected to sign into law this week. Although the proposed extensions of the production tax credit (PTC) and investment-based energy credit were removed from the bill before it was passed, the final version of the Act does contain a bonus depreciation provision that could provide significant economic benefit for certain renewable energy projects that are acquired and placed in service in 2008.

To qualify for bonus depreciation, property that is part of a renewable energy project must satisfy the followng four criteria: (i) the property must have a recovery period of 20 years or less under normal tax depreciation rules, (ii) the original use of the property must commence with the taxpayer seeking to claim the deduction, (iii) the property generally must be acquired during 2008 and no written binding contract for the acquisition must have been in effect before 2008, and (iv) the property must be placed in service during 2008 (or, in certain limited cases, 2009).

If property meets these requirements, the owner is entitled to deduct 50 percent of the adjusted basis of the property in 2008. The remaining 50 percent of the adjusted basis of the property is depreciated over the ordinary tax depreciation schedule. Thus, for example, the portion of a wind project that qualifies for five-year MACRS depreciation may qualify for a total first-year depreciation deduction of 60 percent or 52.5 percent, depending on when during the year the facility is placed in service (50 percent bonus depreciation plus normal first-year depreciation for the remaining 50 percent of the adjusted tax basis)….

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