Brownfields Cleanup Tax Expensing Incentive
The tax Incentive, targeted to private site owners, allows recovery of cleanup costs in the year incurred, rather than having to be capitalized over time (up to 30 years for many projects).
The brownfield expensing tax Incentive encourages site cleanup and redevelopment by allowing taxpayers to reduce their taxable income by the amount they spend on eligible cleanup costs in the year they are made; this cost recovery tool offsets the costs of cleanup and makes brownfield properties more financially advantageous to reuse. It is typically most beneficial to property owners when considered in the early planning stages of the cleanup and redevelopment process. To be eligible for expensing, the costs must be incurred to abate or control a release (or threat of release), or dispose of hazardous materials. Costs for activities such as implementation and monitoring of institutional controls (for example, construction of access roads that serve as caps), demolition and removal of contaminated materials, and state regulatory oversight fees are expensible (i.e., deductible in the year incurred) expenditures; site assessment and investigation activities can also be recovered. Qualifying for and claiming the tax incentive is simple and straightforward; a key step involves working with the designated state agency to determine what documentation is needed to meet the "Section 198 Election" regarding hazardous substances. Once this has been completed, the state issues a statement, which the Internal Revenue Service (IRS) considers valid for the life of the tax incentive.
In place since 1997, the brownfield cleanup expensing incentive expired on 12/31/11. A retroactive extension (from 1/1/12 to 12/31/13) is currently pending before Congress.
How to Apply this Program
Both large- and small-scale cleanup and redevelopment activities can benefit from the use of the brownfield tax Incentive. Projects ranging from large office buildings to small commercial strips have successfully integrated it as a key part of their financing packages, to enhance project cash flow by offsetting cleanup costs. The tax incentive can help attract private capital to previously used properties by giving brownfield developers an added boost in income for the year they invest in cleanup. The tax expensing incentive also can be used to leverage money used for construction. For example, in a situation where soil contamination is capped with a parking lot, the service costs related to the soil remediation and cap construction are expensible.
Charlie Bartsch U.S. EPA, Office of the Assistant Administrator Phone: +1 (202) 566-1054 Email: email@example.com
In the Philadelphia suburb of West Chester, the brownfield tax expensing Incentive proved to be a critical financing motivation leading to the cleanup and redevelopment of an 8.5-acre former landfill and penicillin production facility. Given the magnitude of the cleanup, the federal incentive provided the developer with nearly $800,000 in tax relief-a critical cash-flow benefit that supported financing of the site cleanup and subsequent construction of a new business center and public services complex.