Late last night, the House of Representatives voted to approve H.R. 4853, the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” (the “Act”), which was approved by the Senate on Wednesday. The Act is expected to be signed into law by the president today.
Section 707 of the Act extends the cash grant program by a year, from the end of 2010 to the end of 2011. Renewable energy projects that are placed in service in 2011 will now be eligible to receive a cash grant in lieu of tax credits. Applicants requesting cash grants for projects that are placed in service after the end of 2011 and before the corresponding tax credit termination date would have to establish that construction of the project began before the end of 2011.
Although not addressed in the Act, it is likely that the rules established by Treasury regarding when construction of a project is deemed to have begun will remain substantially the same. Therefore, it is likely that Winston & Strawn’s advice on how to grandfather the cash grant before the program’s deadline will be applicable to the new 2011 termination date.
Moreover, Section 401 of the Act extends bonus depreciation by two years, from the end of 2010 until the end of 2012. Further, the provision increases the first-year bonus depreciation allowance to 100 percent for property that is placed in service between Sept. 8, 2010 and the end of 2011, allowing the taxpayer to expense the entire capitalized cost of the property in the year in which it is placed in service. Property that is placed in service in 2012 is eligible for a 50 percent first-year bonus depreciation allowance.
The Joint Committee explanation that was issued with the proposed legislation clarifies that the same “written binding contract” exclusion applies to 100 percent bonus depreciation property as to all other bonus depreciation property. Therefore, so long as there was no written binding contract in place before 2008 for the acquisition of the property, then property will be eligible for 100 percent bonus depreciation if it is placed in service between Sept. 8, 2010 and the end of 2011.
Taxpayers can elect out of bonus depreciation for a particular class of property placed in service in a given taxable year. However, there is no mechanism to elect out of 100 percent bonus depreciation and into 50 percent bonus depreciation. Therefore, the capitalized basis of property that is placed in service between Sept. 8, 2010 and the end of 2011 must either be entirely expensed in the year it is placed in service or depreciated “normally” without any first year bonus depreciation allowance.