Cost Segregation Study for Renewable Energy Assets
MACRS, ADS, Eligible Assets
Cost Segregation Study for Renewable Energy Assets is quite unique compared to the traditional real estate assets. Most real estate assets can be segregated for all components other than the underlying land. Since the renewable energy assets is part of the business enterprise components, many preliminary project activities may not be incorporated into the study.
Under the MACRS Depreciation schedule, all REA (Renewable Energy Assets) equipment-related are 5 years life, however it can be selected ADS (Alternative Depreciation Schedule) depending on the taxpayer's preference in the financial projection.
Typical assets under Cost Segregation Study:
5 Years Assets: (For Solar Project) Modules, Racking, Inverters, Transformers, Power Conditioning Equipment, Access Roads, Data Acquisition System, Container Boxes, SCADA Compliance, Switch Gears, Installation of Major Components, Permitting, Foundations, (For Wind Project), Foundation for Turbine, Turbine Tower, Turbine Nacelle with generating set, Blade and Hub, HV Cables, GPO, etc.
Indirect Costs (15 Years): Site Clearing & Grading, Fencing, Extended Warranty, Security
Intangible Assets (20 Years): Interconnection
ITC, PTC, Bonus Depreciation
ITC (Investment Tax Credit) reduces the depreciation basis by 50% of the ITC claimed. When claiming the PTC (Production Tax Credit) for Wind generation, there is no basis reduction. Be aware that the ITC is claimed in full when the renewable energy facility is placed in service and in daily operation. This ITC is subject to recapture over a 5-year period, vesting 20% per year.
Bonus Depreciation:
100% Bonus Depreciation for the less than 20 years-life segregated property classifications (i.e. 5-years, 7-years, 15-years) can be allowed for the property placed after September 27, 2017.
The Act extends and modifies the additional first-year depreciation deduction for qualified depreciable personal property by increasing the 50% allowance to 100% for property placed in service after September 27, 2017, and before 2023. After 2022, the bonus depreciation percentage is phased-down to 80% for property placed in service in 2023, 60% for property placed in service in 2024, 40% for property placed in service in 2025, and 20% for property placed in service in 2026.