First-Year Allowance

A tax allowance that a business can claim for capital expenditures—land, equipment, facilities, etc.—during the year the expenditure was made.

First-year allowances are typically much higher than the standard capital expenditure allowances (AIAs and WDAs), but they come with some requirements.

Let’s look at an example.

If we decide to open up a new frisbee golf course in town because frisbee golf is, like, the greatest thing ever, we could potentially deduct the price of the land we buy for the course, as well as the cost of any golf carts or other frisbee golf accoutrements. But there’s a caveat: the stuff we deduct using the First Year Allowance has gotta be green. No, not in color—that would be weird—but in efficiency.

The reason the deduction is so high is because the government wants businesses and self-employed folks to invest in stuff that is environmentally responsible. Since green technology and products tend to be a little more expensive (on the front-end, at least), the higher allowance provides some incentive to take the plunge and buy it anyway.

So it looks like we’ll be going with the solar-powered golf carts and the xeriscaped frisbee golf course.