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Combined Heat and Power Partnership

Modified Accelerated Cost-Recovery System (MACRS) Plus Bonus Depreciation

Date Last Updated1/8/2013
Incentive TypeTax
State/FederalU.S./Federal
Incentive Administrator/Contact OfficeU.S. Internal Revenue Service
Incentive Initiation Date4/18/2011
Incentive Size and Funding SourceUnder the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from 3 to 50 years, over which the property may be depreciated. Fuel cells, microturbines, CHP, solar-electric and solar-thermal technologies are classified as 5-year properties. In addition, the MACRS classifies certain other biomass properties with a class life of 7 years.

Eligible renewable-energy systems also can claim a first-year bonus depreciation. Owners of certain properties are entitled to deduct a significant portion of the adjusted basis of the property during the tax year the property is first placed in service.
  • For property acquired and placed in service after September 8, 2010 and before January 1, 2012, the allowable first year deduction is 100% of the adjusted basis (i.e., the property is fully depreciated and additional deductions under MACRS cannot be claimed).
  • For property placed in service from 2008 - 2013, for which the placed in service date does not fall within the above window, the allowable first-year deduction is 50% of the adjusted basis. In the case of a 50% first year deduction, the remaining 50% of the adjusted basis of the property is depreciated over the ordinary MACRS depreciation schedule.
The bonus depreciation rules do not override the depreciation limit applicable to projects qualifying for the federal business energy tax credit. Before calculating depreciation for such a project, including any bonus depreciation, the adjusted basis of the project must be reduced by one-half of the amount of the energy credit for which the project qualifies.
Eligible RecipientOwners of certain renewable energy technology.
Eligible FuelDoes Not Specify
Eligible Project Size (MW)Does Not Specify
Minimum Efficiency Required (%)Does Not Specify
Other Selected Eligibility CriteriaThe MACRS, which refers to the energy investment tax credit or ITC to define eligible property. Such property currently includes: fuel cells, microturbines, CHP, a variety of solar-electric and solar-thermal technologies and eligible biomass property. Eligible biomass property generally includes assets used in the heating or conversion of biomass 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.

To qualify for bonus depreciation, a project must satisfy these criteria:
  • 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 been acquired during the period from 2008 - 2013.
  • The property must have been placed in service during the period from 2008 - 2013.
Application Form(s)Tax Form (PDF) (2 pp, 234K)
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