Bonus Depreciation
for Outdoor Lighting

On March 29, the Internal Revenue Service (IRS) issued Revenue Procedure 2011-26, which provides guidance concerning the first-year depreciation deduction for new assets (bonus depreciation).

This ruling defines the processes by which businesses may deduct as “bonus depreciation” 100% of the cost of certain new equipment including energy efficient outdoor lighting fixtures for the tax year 2011. All such special depreciation is covered by section 946 of the Code (chapter 3). Indoor fixtures already have advantageous depreciation rules under section 179D of the Internal Revenue code as created by EPACT 2005.

This bonus depreciation is a time limited benefit. The 100% provision expires on 12/31/2011 and thereafter the bonus depreciation falls to 50% in the first year and normal depreciation on the balance.

In order to qualify, at least 10% of the final installation must be completed on or before 12/31/2011. The taxpayer is permitted to carry forward any unused portion of the depreciation to a future tax year, so even if the taxpayer cannot use the bonus depreciation for 2011 it is not lost.

To claim the bonus depreciation, the taxpayer must file Internal Revenue Form 4562 with its 2011 federal tax return.

This is an extraordinary tax benefit. It is highly unlikely that it will be extended beyond 12/31/2011. Therefore, any taxpayer in need of an energy efficient upgrade to its outdoor lighting should move quickly to insure that at least 10% of the total installation will be completed by 12/31/2011.

As in the case of any tax information, Aelux makes no warranty as to the applicability of this information for any specific taxpayer. Only the company’s tax advisor is qualified to opine on tax issues.