Part
01
of one
Part
01
Please provide the eligibility requirements for a Combined Heat and Power (CHP) Plant to receive accelerated depreciation benefits under IRS tax law.
Hello! Thank you for your inquiry regarding the eligibility requirements for a Combined Heat and Power (CHP) Plant to receive accelerated depreciation benefits under IRS tax law. In short, for CHP plants to qualify for accelerated depreciation benefits under MACRS, “the plant must utilize a total of at least 20% of its total useful energy in the form of thermal energy which is not used to produce electrical or mechanical power (or combination thereof) and produce at least 20% of its total useful energy in the form of electrical or mechanical power (or combination thereof).” Below you will find a deep dive of my finding.
METHODOLOGY
To research your request, I researched government agencies and trusted web sites including, the IRS, GPO and the EPA. I was able to find all the eligibility requirements for a Combined Heat and Power (CHP) Plant to receive accelerated depreciation benefits under IRS tax law.
FINDINGS
The MACRS depreciation rate for CHP, solar-electric and solar-thermal technologies, fuel cells and microturbines is 5-years. Certain other biomass properties have an MACRS classification of 7-years.
For CHP plants to qualify for accelerated depreciation benefits under MACRS, “the plant must utilize a total of at least 20% of its total useful energy in the form of thermal energy which is not used to produce electrical or mechanical power (or combination thereof) and produce at least 20% of its total useful energy in the form of electrical or mechanical power (or combination thereof).” CHP plants need an energy efficiency that exceeds 60 percent.
Microturbines: The IRS term ‘‘qualified microturbine property’’ is defined as a stationary microturbine power plant in which its nameplate capacity is less than 2,000 kilowatts. The electricity portion efficiency must generate 26% or more at the “International Standard Organization” conditions. The limitations for this type of property that is placed in service during the tax year are not to exceed the total of $200 per kW of the property's capacity.
In December 2015, The Consolidated Appropriations Act extended the IRS deadline for "placed in service" to claim bonus depreciation. This extension allows equipment that is placed in service before January 1, 2018, to qualify for 50%, placed in service in 2018 can qualify for 40%, and qualified equipment that is placed in service during the 2019 tax season will qualify for 30% in bonus depreciation.
The IRS will not let you use MACRS for any property you previously elected to exclude from MACRS or for property that was placed in service before 1987.
The complete updated IRS 946 book on MACRS can be found here and the IRS Form 4562 for depreciation and amortization can be found here.
CONCLUSION
In conclusion, for CHP plants to qualify for accelerated depreciation benefits under MACRS, “the plant must utilize a total of at least 20% of its total useful energy in the form of thermal energy which is not used to produce electrical or mechanical power (or combination thereof) and produce at least 20% of its total useful energy in the form of electrical or mechanical power (or combination thereof).”
Thank you for choosing Wonder! Let us know if we can assist you with anything else.