The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, signed into law last December, temporarily increases bonus depreciation deductions under Section 168(k) from 50 percent to 100 percent, allowing for an immediate recovery of costs for certain capital expenditures. On March 29th, the IRS clarified some of the issues related to bonus depreciation and how it interacts with Section 1603 Treasury Grants in Revenue Procedure 2011-26.
As discussed previously on the blog, Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 provides for Treasury payments to eligible persons who place in service certain energy property. These payments are equal to 10 percent or 30 percent of the basis of the energy property in lieu of the Energy Credit under Section 48. Without regard to 100% bonus deprecation, renewable energy property is generally depreciated on an accelerated basis over 5 years. The depreciable adjusted basis that is recovered, however, over the 5 year period is equal to 100% of the allocable cost basis less 50 percent of the Section 48 credit claimed or 50% of the Section 1603 grant that is received by the taxpayer.
The enactment of the 100% depreciation raised a number of questions, including the ordering rules for reducing the basis of assets that received Section 1603 grants and claim 100% bonus depreciation. As expected, the Revenue Procedure confirms that taxpayers should calculate the adjusted basis in a qualified energy property by first taking into account the Section 1603 payment and then reducing the adjusted basis of the property. 100% bonus depreciation may then be claimed on the adjusted basis of the property.
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