On April 26, 2011, I posted a short article about the one-year extension of the grant in lieu of the tax credit allowed for certain expenditures relating to energy property specified under Section 1603 of the American Recovery and Reinvestment Act of 2009, which was effected by Section 707 of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“Tax Relief Act”) enacted by Congress and signed into law by the President at the end of last year.  In addition to the aforesaid tax credit extension, the Tax Relief Act provides for other notable changes to the Internal Revenue Code (“IRC”), which are the subject of this blog entry.

Under Section 401 of the Tax Relief Act, for example, Congress lengthened by two years the time period during which a taxpayer may receive a 50% bonus depreciation under the IRC’s accelerated cost recovery system regulations for the taxable year in which the taxpayer places any “qualified property” (as such term is defined by 26 U.S.C. § 168(k)) in service.  The term “qualified property” comprises a host of “energy property” (as such term is defined by 26 U.S.C. § 48( c)), including, for example, “combined heat and power system property” and “qualified small wind energy property.”  Section 401 of the Tax Relief Act also amends Section 168(k) of the IRC (1) to create a temporary provision that allows taxpayers to depreciate 100% of the adjusted basis of any “qualified property” acquired after September 8, 2010, and before January 1, 2012 (and, in some cases, January 1, 2013) and (2) to extend the time period during which a taxpayer may accelerate the alternative minimum tax (AMT) credit in lieu of bonus depreciation (and add special rules for taxpayers making this election).

Sections 709 and 710 of the Tax Relief Act, which respectively amend the Energy Efficient Appliance Credit (26 U.S.C. § 45M) and the Nonbusiness Energy Property Tax Credit (26 U.S.C. § 25C), merit some brief commentary, as well.  Respecting the former, the Tax Relief Act adds new tax credits for dishwashers, clothes washers and refrigerators that are manufactured in 2011 (all such prior tax credits having expired either in 2008, 2009 or 2010) and significantly reduces the aggregate amount that a taxpayer may take under the Energy Efficient Appliance Credit from $75,000,000 to $25,000,000 (although as a result of this amendment the starting point for measuring the aggregate amount was changed from taxable years beginning after December 31, “2007" to “2010").  Modifications to the Nonbusiness Energy Property Tax Credit effected by the Tax Relief Act were also substantial.  Among other changes, the Tax Relief Act (1) extends the Nonbusiness Energy Property Tax Credit through December 31, 2011, (2) reduces the allowable credit percentage from 30% of qualified energy efficiency improvements and residential energy property expenditures to 10% of all such costs and (3) institutes a number of credit limitations, such as the “Lifetime Limitation.”  Under the Lifetime Limitation, the amount a taxpayer may claim under the Nonbusiness Energy Property Tax Credit for any taxable year shall not exceed the excess of $500.00 over the aggregate credits allowed for all prior taxable years ending after December 31, 2005.

The foregoing discussion, along with my April 26th article, together provide a brief overview of some of the federal credit extensions and other tax law changes established by the Tax Relief Act.  A complete description of the entire Tax Relief Act is beyond the scope of this blog entry.  Please do not hesitate to contact my office to discuss in more detail any of the provisions highlighted above or any aspect of the Tax Relief Act that I have not addressed herein.