Special 2011 depreciation deduction motivation for projects
Santa Rosa-based G&C AutoBody is spending $2.09 million installing photovoltaic power arrays on three of its seven locations to write off the whole project cost in one year under a special 2011 tax incentive for capital investments.
By the end of this month, the 39-year-old company will have installed a $1.3 million system on its Santa Rosa main offices and shop and a $450,000 array on its Petaluma store. This summer a $340,000 system was installed on a year-old location in Windsor.
Considering the federal and state incentives on renewable-energy projects, the 100 percent bonus depreciation federal deduction for “qualified property” projects in 2011 and the potential to offset electricity costs, the three solar projects were a bargain, according to Gene Crozat, president and founder. He’s planning for energy costs to rise significantly in coming years as greenhouse-gas emissions-control measures kick in.
“If you’re a business that uses any electricity, you’re crazy if you don’t take advantage of this,” he said.
The federal business energy investment tax credit applies to 30 percent of the cost of solar projects completed in the next few years. The state offers a 10 percent performance incentive payable over 60 months.
Because of the potential operational cost savings, solar arrays are being considered for G&C’s Novato and Rohnert Park stores, which opened this year are under long-term leases, according to Mr. Crozat.
But the federal first-year bonus modified accelerated cost-recovery system (MACRS) depreciation deduction for 2012 for drops to 50 percent of the cost for projects undertaken and finished that year. The rest of the cost is depreciable over the following five years, using the federal renewable-energy project depreciation schedule in place since 1986.
Congress passed the 50 percent federal first-year depreciation deduction in February 2008 for projects completed that year and renewed the incentive a year later. In December, it was expanded to 100 percent for 2011 projects.
“If you do not pay a lot in taxes, solar can be a waste of money,” said Shawn Crozat, chief operating officer. “But if you do, you can take the tax money and reinvest it into the company.”
G&C AutoBody had $20 million in revenues last year and is anticipating receipts of $30 million this year. The solar projects have tapped the company’s planned capital spending for the fourth quarter.
However, the company in the first quarter of next year wants to acquire two more auto body shops. That includes one in Napa Valley and another elsewhere in the North Bay currently in purchase negotiations.
“It’s something we have wanted to do for a long time,” Shawn Crozat said about a Napa location. “But then the Novato and Rohnert Park opportunities came up.”
The special bonus depreciation deduction has been helpful for businesses because it applies to a number of MACRS classes of new business property — equipment with depreciation schedules of less than 20 years and software normally depreciable over three years and commercial real estate tenant improvements, according to Greg Smith, a Santa Rosa-based CPA whose clients include G&C AutoBody.
“These leasehold improvements are being done in a big way,” he said.
Energy Solar of Cloverdale installed the arrays on G&C’s Petaluma and Windsor shops. Mill Valley-based startup Clean Focus Energy is installing the system in Santa Rosa.
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