EPA's Brownfields Economic Redevelopment Initiative is designed to empower States, communities, and
other stakeholders in economic redevelopment to work together in a timely manner to prevent, assess, safely
clean up, and sustainably reuse brownfields. A brownfield is a site, or a portion thereof, that has actual or
perceived contamination and an active potential for redevelopment or reuse. EPA's Brownfields Initiative
strategies include funding pilot programs and other research efforts, clanfying liability issues, entering into
partnerships, conducting outreach activities, developing job training programs, and addressing environmental
justice concerns.
United States	Office of	Publication. EPA/500/F-95/057
Environmental Protection	Solid Waste and
Agency	Emergency Response March 1996
$EPA Proposed	Brownfields Tax
Incentive
Office of Outreach and Special Projects (5101)	Quick Reference Fact Sheet
OVERVIEW
On March 11, 1996, President Clinton announced a
new tax incentive to spur the cleanup and
redevelopment of brownfields in distressed urban
and rural areas. The President's announcementbuilds
on the momentum of EPA's Brownfields Action
Agenda, announced in January 1995, which outlines
a comprehensive approach to assessing, safely
cleaning up, and sustainably reusing brownfields.
The Brownfields tax incentive will help bring
thousands of abandoned and under-used industrial
sites back into productive use, providing the
foundation for neighborhood revitalization, job
creation, and the restoration of hope in our nation's
cities and distressed rural areas.
BACKGROUND
Federal tax law generally requires that expenditures
which increase the value or extend the useful life of a
property, including costs that adapt the property to a
different use, be capitalized and, if the property is
depreciable, depreciated over the life of the property.
This capitalization treatment also applies to the cost
of acquiring property. In contrast, repair and
maintenance expenditures generally are deducted in
the year incurred. Currently, many environmental
remediation expenditures fall into the former category
and must be capitalized, not expensed.
In 1994, the Internal Revenue Service (IRS) issued a
rule which concluded that certain costs incurred to
clean up land and groundwater are currently
deductible as business expenses. The ruling only
addresses cleanup costs incurred by the same taxpayer
that contaminated the land It does not address
cleanup costs incurred by a party that purchases
contaminated property, or an owner interested in
putting the land to new use. While this IRS ruling
resolved some issues, it is still unsettled whether
other remediation costs not addressed in the ruling
are currently deductible or must be capitalized.
These unresolved issues create potential financial
obstacles in the contaminated properties market.
Current owners of contaminated property can
remediate their property and sell the clean property
at its full market value, enabling them to fully recover
the cost of remediation. However, prospective
purchasers of contaminated property must purchase
the property at its impaired value, attributable to the
contamination, and capitalize the remediation costs.
This arguably leaves prospective purchasers at a
disadvantage in terms of environmental remediation
expenditures. Additionally, property owners who
want to remediate their property and put it to a
different use are at a disadvantage because they are
not able to deduct their remediation costs.
TAX INCENTIVE
Under the proposed tax incentive, environmental
cleanup costs for properties in designated areas would
be fully deductible in the year in which they are
incurred, rather than capitalized. This incentive
would reduce the capital cost for these types of
investments by more than one half. The $2 billion

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Brownfields tax incentive, fully paid for in the
President's seven year balanced budget, is expected
to leverage $10 billion in private investment and
return an estimated 30,000brownfields to productive
use.
The tax incentive would be applicable to properties
that meet specified land use, geographic, and
contamination requirements. To satisfy the land use
requirement, the property must be held by the
taxpayer incurring the eligible expenses for use in a
trade or business or for the production of income, or
the property must be properly included in the
taxpayer's inventory. To satisfy the contamination
requirement, hazardous substances must be present
or potentially present on the property. To meet the
geographic requirement, the property must be located
in the one of the following areas:
•	EPA Brownfields pilot areas designated pnor
to February 1996;
•	Census tracts where 20 percent or more of
the population is below the poverty level;
•	Census tracts that have a population under
2,000, have 75 percent or more land zoned for
industrial or commercial use, and are adjacent
to one or more census tracts with a poverty
rate of 20 percent or more; and
• Empowerment Zones and Enterprise
Communities (both existing and those that
would be designated in the second round
proposed in the President's budget).
Both rural and urban sites may qualify for this
incentive. Sites on EPA's National Priorities List
would be excluded.
While many of EPA's Brownfields activities have
concentrated on removing liability barriers and
clarifying cleanup issues, the Agency recognizes the
importance of providing financial incentives to spur
the cleanup and redevelopment of brownfields. The
Brownfields tax incentive is an important tool that
would accelerate the cleanup of brownfields—
returning them to productive use and creating jobs in
communities across the country.
The information contained in this fact sheet is based
on the President's proposed tax incentive and is
entirely subject to change by Congress during the
legislative process
CONTACT
Mary Culler
U.S. EPA
(202) 260-9347
o EPA
United States
Environmental Protection
Agency (5101)
Washington, DC 20460
Official Business
Penalty for Pnvate Use
$300

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