United States (Federal)

US-13:Modified Accelerated Cost-Recovery System (MACRS)

Policy Description

Under the federal Modified Accelerated Capital-Recovery System (MACRS), businesses may recover investments in certain energy equipment (property) through depreciation tax 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.

Description

Under the federal Modified Accelerated Capital-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions [1]. 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. For most renewable energy and CHP the property class life is set at five years. For certain biomass the period is set at seven years (*1).

The Energy Improvement and Extension Act of 2008 specified that eligible property placed in service after September 8, 2010 and before January 1, 2012 qualifies for 100% first-year bonus depreciation. For 2012, bonus depreciation is still available, but the allowable deduction reverts from 100% to 50% of the eligible basis.

Eligibility
A number of renewable energy technologies as well as CHP units are classified as five-year property. The definition of eligible property follows that of the ITC (see Policy US-7), including various solar-electric and solar-thermal technologies, fuel cells and microturbines, geothermal electric, direct-use geothermal and geothermal heat pumps,  small wind (100 kW or less), combined heat and power (CHP) and large-scale wind. 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 the energy investment tax credit under § 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. In addition, for certain other biomass property, the MACRS property class life is seven years (*1).

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Incentives & Subsidies

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 1986

Policy Linkages

Supported By Save Energy Now LEADER (replaced by US-4b Better Buildings, Better Plants Program) Effort Defining
Supported By Energy Star for Industry Program Effort Defining
Complements Business Energy Investment Tax Credit (ITC) Supporting Measure

Agencies Responsible

Department of Treasury

Primary Objective: Energy

Objective

Increase cost-effectiveness of investment in renewable energy and energy efficiency technologies

Target Group

Industry, commercial, and agricultural sectors

Driver of energy consumption or emissions affected by policy: Technology implementation rate

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

Industry and other sectors

Quantitative Target? no

Target: N/A

Time Period: N/A

Progress Monitored? no

Verification Required? yes

Enforced? no

Requirements on the Target Group

To qualify for bonus depreciation, a project must satisfy these criteria [2]:

  • 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 generally must have be acquired during the period from 2008 - 2012; and
  • the property must have be placed in service during the period from 2008 - 2012.

Support by Government

Contribution from the federal budget through depreciation tax deductions. 

Implementation Toolbox

The main tool supporting the MACRS is the IRS publication on Figuring Depreciation Under MACRS. See http://www.irs.gov/publications/p946/ch04.html

Complexity of Implementation

Government

Fixed rules, releatively easy to check compliance.

Target Group

Fixed rules, relatively easy to check eligibility and via standard forms request financial incentive.

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions Not available Market certainty provided by MACRS has been found to be a significant driver of private investment for energy industries [4].
Estimated costs/benefits for industry Not available Not available
Estimated cost for government Not available Not available
Other Benefits
Specific Benefits

References & Footnotes

References

[1] Modified Accelerated Cost-Recovery System (MACRS). http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US06F&re=1&ee=1

[2] Modified Accelerated Cost-Recovery System (MACRS). http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US06F&re=1&ee=1

[3] Internal Revenue Service, Form 4562, Depreciation and Amortization. http://www.irs.gov/uac/Form-4562,-Depreciation-and-Amortization

[4] Depreciation of Property in MACRS. Solar Energy Industries Association. http://www.seia.org/policy/finance-tax/depreciation-solar-energy-property-macrs

Footnotes

(*1) Eligible biomass property generally includes assets used in the conversion of biomass to heat or to a solid, liquid or gaseous fuel, and to equipment and structures used to receive, handle, collect and process biomass in a waterwall, combustion system, or refuse-derived fuel system to create hot water, gas, steam and electricity.

(*2) No verification on the resulting EE improvements or GHG reductions but obviously verifications on the spending.