New tax legislation expanded the bonus depreciation rules to allow 100% first-year expensing of qualified property placed in service during a defined window. For the renewable energy industry, this provision offers a meaningful acceleration of tax benefits that can significantly improve the economics of solar, wind, and storage projects — but the interaction with existing energy tax credit structures requires careful attention.
Developers and investors should be aware that electing bonus depreciation affects the calculation of the investment tax credit basis, and that the interplay between depreciation elections and tax equity structures adds complexity to deal modeling. In many cases, the optimal strategy will depend on the specific investor’s tax position, the project’s financing structure, and whether the developer intends to retain the project or execute a sale-leaseback transaction.
The phasedown of bonus depreciation rates in future years means that timing decisions made today will have long-term consequences. Snow+Snow’s energy and tax teams are working with developers, sponsors, and tax equity investors to evaluate structuring options and ensure that transaction documents appropriately allocate risk and opportunity as these rules continue to evolve.
