Qualifying solar equipment has a five-year recovery period for the bonus-depreciation test

Plain-English summary

Counsel considered the recovery period for a solar energy system when applying the bonus-depreciation rules in IRC § 168(k). Property described in § 48(a)(3)(A), including certain solar-energy equipment, is classified as five-year property under § 168(e). That five-year period is used for the bonus-depreciation eligibility test even if the taxpayer elected the alternative depreciation system under § 168(g)(7). Counsel therefore concluded that a solar system described in § 48(a)(3)(A) meets the requirement that qualified property have a recovery period of 20 years or less. The email did not decide whether the system met any other requirement for bonus depreciation.

Ruling snapshot

• Question: What recovery period applies to qualifying solar equipment for the 20-year-or-less bonus-depreciation requirement?
• Outcome: Advice given: five years, if the system is described in IRC § 48(a)(3)(A)
• Key authorities: IRC § 48(a)(3)(A), § 168(c), § 168(e)(3)(B)(vi)(I), § 168(g)(7), § 168(k)(2)(A)(i)(I); Treas. Reg. § 1.168(k)-2(b)(2)(i)(A)

Full text (IRS public release)

ID: CCA_2020090110273542
UILC: 168.36-00

Number: 202053011
Release Date: 12/31/2020
From: -----------------------
Sent: Tuesday, September 1, 2020 10:27:35 AM
To: --------------------
Cc:
Bcc:
Subject: RE: Request for National Office Assistance - POSTF-115960-20

Hi ---------. This email responds to your question about the recovery period for solar
energy systems for determining whether such property is eligible for the additional first
year depreciation deduction under section 168(k) (bonus depreciation). Section
168(e)(3)(B)(vi)(I) defines property classified as 5-year property to include any property
described in section 48(a)(3)(A), with minor modifications not relevant in this
case. Section 48(a)(3)(A) includes equipment which uses solar energy for certain
purposes. Section 168(c) provides that for property classified as 5-year property, the
applicable recovery period is 5 years. Pursuant to section 168(k)(2)(A)(i)(I), one of the
requirements to be eligible for bonus depreciation, as amended by the TCJA, is that the
property must have a recovery period of 20 years or less under section 168. Section
1.168(k)-2(b)(2)(i)(A) provides, in relevant part, that the recovery period is determined in
accordance with section 168(c) regardless of any election made by the taxpayer under
section 168(g)(7). Accordingly, if the solar energy system at issue is described in
section 48(a)(3)(A), it will have a 5 year recovery period under section 168(c) and
would meet the requirement under section 168(k)(2)(A)(i)(I) that the property must have
a recovery period of 20 years or less. As you requested, this response does not
address any other requirements that must be met to be qualified property for bonus
depreciation.

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