TAX BREAK BOOSTS WIND

Bonus Depreciation Rules Increase Optimism For Wind Developers
John Marciano, 5 April 2011 (North American Windpower)

"…[T]he 100% depreciation bonus Congress passed at the end of 2010…permits the owner of certain property, including wind turbines and certain transmission assets, to write off the entire cost of the property in the year it goes in service…[It] is an expansion of an existing 50% bonus…[that applies to property placed in service after 2007 and before 2013…[with which] half of the project cost [can] be written off immediately…

"The new rules relieve some uncertainty and have increased optimism…The 100% bonus can be worth as much as $0.0445 per dollar of capital cost for wind turbines and $0.18 per dollar of capital cost for certain transmission assets…[It] applies to property acquired and placed in service between Sept. 8, 2010, and Jan. 1, 2012. Certain long-lived properties have until Jan. 1, 2013…"

Though wind developers are happy to have the depreciation opportunity, it seems to fall short of what investors consider the best of incentives. (click to enlarge)

"…A property is considered acquired when the owner pays or accrues the cost of the property, depending on its accounting method…Any taxpayer that enters into a written binding contract…for the acquisition or construction of the property meets the acquisition requirement…[T]he project will meet the acquisition requirement if the owner starts real physical work on the property during the eligibility window…[P]hysical work…[is when] more than 10% of the total cost of the bonus-eligible property is accrued…

" A taxpayer must also place the property into service during the eligibility window. In addition, the original owner/user generally is the only one eligible for the bonus. A disposition of the property during the first year will cause that property owner to lose the bonus…[with] two exceptions [involving sale-leasebacks]…"

Other incentives are vital until tax equity investment, which is better than during the depths of the recession, returns to previous levels. (click to enlarge)

"Project owners who claim a 30% cash grant from the U.S. Department of the Treasury are required to reduce their depreciable basis in the related property by 50% of the grant or credit…In certain situations, the owner of the grant-eligible property may lease the property to a third party and elect to pass the incentive to the lessee…

"The new rules make clear that the recovery period under general rules is not altered by the fact that the 100% depreciation bonus permits a complete write-off in one year…[I]ncome related to wind or solar equipment would be taken into account over five years, even where the 100% bonus is claimed…[A] taxpayer may opt out of the 100% bonus and instead claim the 50% bonus for property placed in service in the tax year that includes Sept. 9, 2010. However, if equipment qualifies for the 100% bonus in 2011 or 2012, then the taxpayer may claim only the 100% bonus or nothing."