Modified Accelerated Cost-Recovery System (MACRS)

Note: The Tax Cuts and Jobs Act of 2017 enhanced bonus depreciation, allowing 100% depreciation for qualified assets acquired and placed in service between September 27, 2017, and January 1, 2023. This bonus depreciation will decrease annually by 20%, starting with 80% in 2023.

Under the Modified Accelerated Cost-Recovery System (MACRS) at the federal level, businesses can deduct investments in certain properties through depreciation. MACRS sets various class lifespans for property types, ranging from 3 to 50 years, for depreciation purposes. Numerous renewable energy technologies are categorized as five-year property under 26 USC § 168(e)(3)(B)(vi), which is linked to 26 USC § 48(a)(3)(A), commonly known as the energy investment tax credit (ITC). This includes:

• Various solar technologies
• Fuel cells and microturbines
• Geothermal electric
• Direct-use geothermal and geothermal heat pumps
• Small wind systems (100 kW or less)
• Combined heat and power (CHP)
• Additionally, large wind facilities are also covered under this due to the general inclusion of “wind” as an eligible technology.

For other renewable energy properties like biomass or marine and hydrokinetic, the MACRS property class life is seven years. Eligible biomass includes assets used in biomass conversion to energy and equipment for processing biomass. Marine and hydrokinetic properties utilize waves, tides, and other oceanic elements for energy, excluding traditional hydropower with dams or impoundments.

The 5-year depreciation schedule for solar, geothermal, and wind has been in effect since 1986. The Energy Policy Act of 2005 added fuel cells, microturbines, and solar hybrid lighting as five-year properties. The Energy Improvement and Extension Act of 2008 further expanded this to include geothermal heat pumps, CHP, and small wind.

Bonus Depreciation Variations

Bonus Depreciation has varied over the years. The Tax Cuts and Jobs Act of 2017 recently raised it to 100% for qualifying property placed in service between September 27, 2017, and January 1, 2023.

History of Bonus Depreciation

The 50% first-year bonus depreciation, initially set in 2008, was extended for 2009 by the American Recovery and Reinvestment Act of 2009 and again for 2010 by the Small Business Jobs Act of 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 adjusted this provision, allowing 100% depreciation for eligible property in service between September 8, 2010, and January 1, 2012, and 50% for 2012. The American Taxpayer Relief Act of 2012 extended the 50% depreciation for 2013, and the Tax Increase Prevention Act Of 2014 extended it for 2014.

For detailed information on MACRS, refer to IRS Publication 946, IRS Form 4562, and its instructions. Visit the IRS website for these forms and publications. For guidance on bonus depreciation, including options for 50% or 100% claims and details on eligible property, see IRS Rev. Proc. 2011-26.