On March 9 President Bush signed into law a bill that will dramatically increase depreciation of new equipment and thus serve as an economic stimulus.
The bill, H.R. 3090, includes a provision for a 30 percent first-year deduction for business property in the year it is placed into service. This provision will promote sales of high-efficiency electrical products by reducing the up-front cost to customers, who often decide against buying energy-efficient and cost-saving equipment because of their higher prices.
The following example illustrates what the provision would mean for the taxpayer:
Assume that on March 1, 2002, a taxpayer acquires and places in service qualified property that costs $1 million. Under the provision, the taxpayer is allowed an additional first-year depreciation deduction of $300,000. The remaining $700,000 of adjusted basis is recovered in 2002 and subsequent years pursuant to current depreciation rules.
The law will allow the depreciation for qualified property purchased between Sept. 11, 2001 and Sept. 11, 2004.
The National Electrical Manufacturers Association (NEMA), Rosslyn, Va., drafted and successfully advocated a further one-year extension of the “placed in service” date for long life-time equipment to Jan. 1, 2006. The law will, therefore, provide incentive for investment in such projects as building or extending electrical transmission and distribution systems. The extension recognizes delays often caused by regulatory review of these projects. The NEMA amendment was widely supported by industry, including electric and gas utilities, the oil industry and industries with long lead-time investments.
“The bill had been the subject of controversy between the Senate and House of Representatives for some time,” said Timothy Feldman, NEMA vice president of government affairs. “Nonetheless, we persisted even though there were times it appeared the bill would never pass. It is even more significant because of the uncertainty of the tax provisions in the energy legislation currently being debated in the Senate.”
The law contains a number of other provisions, including an extension of unemployment benefits for laid-off workers, incentives for investment in New York City, and extensions of tax provisions, including the wind energy production tax credit. The law also provides for $8 billion in tax-free New York Liberty Bonds to rebuild Manhattan. One of the tasks this funding may be used for is rebuilding the electrical infrastructure.
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