United States
Environmental
Protection Agency
Washington, D.C. 20460
Solid Waste
and Emergency
Response(5101)
Brownfields
Tax Incentive
EPA500-F-97-155
August 1997
Outreach and Special Projects Staff (5101)
Quick Reference Fact Sheet
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 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, clarifying liability issues, entering into partnerships, conducting
outreach activities, developing job training programs, and addressing environmental justice concerns.
OVERVIEW
On August 5, 1997, President Clinton signed the
Taxpayer Relief Act (HR 2014/PL 105-34), which
included a new tax incentive to spur the cleanup and
redevelopment of brownfields in distressed urban and
rural areas. The Brownfields Tax Incentive builds on
the momentum of the Clinton Administration's
Brownfields National Partnership Action Agenda,
announced in May 1997. The National Partnership
outlines a comprehensive approach to the assessment,
cleanup, and sustainable reuse ofbrownfields, including
specific commitments from 15 Federal agencies. 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 those expen-
ditures that increase the value or extend the useful life
of a property, or that adapt the property to a different
use, be capitalized; and, if the property is depreciable,
that they are depreciated over the life of the property.
This means that the full cost cannot be deducted from
income in the year that the expenditure occurs. This
capitalization treatment also applies to the cost of
acquiring property. In contrast, repair and mainte-
nance expenditures generally can be deducted from
income in the year incurred. In the past, many
environmental remediation expenditures had to be
capitalized overtime, and could not be fully deducted
or expensed in the year incurred.
In 1994, the Internal Revenue Service (IRS) issued a
ruling that stated that certain costs incurred to clean
up land and groundwater could be deducted as business
expenses in that same year. However, the ruling only
addressed cleanup costs incurred by the same taxpayer
that contaminated the land. It did not address cleanup
costs incurred by a party that had purchased
contaminated property, or an owner who was
interested in putting the land to new use. Further, the
IRS ruling was unclear as to whether other remediation
costs not specifically addressed in the ruling would be
deductible in the year incurred or would have to be
capitalized.
These unresolved issues created potential financial
obstacles in the contaminated properties market.
Specifically, owners of contaminated property could
remediate their property and sell the clean property at
its full market value, enabling them to fully recoverthe
cost of remediation. However, prospective purchas-
ers of contaminated property had to purchase the
property at its impaired value, attributable to the
contamination, and capitalize the remediation costs.
This arguably left prospective purchasers at a disad-
vantage in terms of environmental remediation ex-
penditures. Additionally, property owners who wanted
to remediate their property and put it to a different use
were at a disadvantage because they were not able to
fully deduct their remediation costs in the year in-
curred.
-------
TAX INCENTIVE
Under the new Brownfields Tax Incentive, environ-
mental cleanup costs for properties in targeted areas
are fully deductible in the year in which they are
incurred, rather than having to be capitalized. The
$1.5 billion incentive is expected to leverage $6.0
billion in private investment and return an estimated
14,000 brownfieldsto productive use. The Brownfields
Tax Incentive is a valuable and potent tool that
communities can now utilize in addressing brownfields.
The tax incentive is 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 prior to
February 1997;
• 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 of their 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
• Any Empowerment Zone or Enterprise Commu-
nity (and any supplemental zone designated on
December 21, 1994).
Both rural and urban sites may qualify for this tax
incentive. The taxpayer must get a certification from
the state environmental agency that his/her property
is in a targeted area. The Brownfields Tax Incentive
sunsets after 3 years, thereby covering eligible costs
incurred or paid from the date of enactment until
January 1, 2001. Sites on EPA's National Priorities
List are excluded.
CONTACT
U.S. EPA-OSWER
Outreach and Special Projects Staff
(202)260-4039
Alternatively, please use the Internet World Wide
Web to access the EPA Brownfields Home Page
at http://www.epa.gov/brownfields
Brownfields Fact Sheet
August 1997
Brownfields Tax Incentive
EPA 500-F-97-155
------- |