Natural Gas Distribution Lines

Created by the Tax Reform Act of 1986, the Modified Accelerated Cost Recovery System (MACRS) is the system within the Internal Revenue Code for determining the depreciable lives of assets. Businesses “recover” the costs of tangible property (assets) by making annual deductions from their taxable income for depreciation over the specified life of the property. The 2005 Energy Policy Act shortened the MACRS recovery period for natural gas distribution lines from 20 years to 15 years for general depreciation, and established a period of 35 years for the Alternative Depreciation System (APS), which businesses may elect instead. The shorter recovery period allows utility companies to deduct more from their taxable income sooner, even when the distribution lines have usable lives of more than 20 years. To qualify for the 15-year recovery period, the distribution lines utilities use to deliver natural gas to their customers must have been placed in service after April 11, 2005 and before January 1, 2011, and the business must not have entered into a binding contract for the construction of the distribution lines before April 12, 2005.