Brownfields Update for the Pacific Northwest

Time appears to be running out on a federal tax incentive available to private investors cleaning up brownfield sites.

Under the federal Brownfields Tax Incentive, environmental cleanup costs are fully deductible in the year they are incurred, rather than having to be capitalized. The tax incentive is not a tax credit, nor is it available to public entities. A tool to encourage the cleanup of brownfield sites by private individuals, the tax incentive is set to expire Dec. 31.

It’s unlikely this valuable tax incentive is going to be renewed.

Since 1994, the Internal Revenue Service has allowed certain costs from assessing and cleaning up soil and groundwater to be deducted as business expenses in the year incurred. However, the IRS allowed only taxpayers who caused the contamination on the properties they owned to deduct these costs in the year incurred. People or companies that bought contaminated properties and cleaned them up had to capitalize their costs over several years.

Then, in August 1997, the Taxpayer Relief Act was passed. It included the federal Brownfields Tax Incentive, which encourages the redevelopment of brownfields in distressed urban and rural areas. The tax incentive was extended to private individuals who bought contaminated lands with the goal of cleaning them up. Set to expire after 2003, the tax incentive was extended through the end of this year by the Working Families Tax Relief Act of 2004.

In some communities, the tax incentive has been a valuable tool, cleaning up blight and sparking economic development. The government estimates this tax incentive costs the country about $300 million in annual tax revenue. However, it’s also expected to leverage $3.4 billion in private investments and return 8,000 brownfields to productive use.

Entities interested in the tax incentive must receive a certification of eligibility from their state contact, which includes a letter stating the site is contaminated and warrants cleanup. Property owners must show there has been a release, threat of release or disposal of a hazardous substance at the property. They also must show they own the property for business purposes, and they have incurred qualified environmental remediation costs.

Amended tax returns can be filed to deduct expenditures from prior tax years, provided the costs were incurred after August 5, 1997.

For more information about the Brownfields Tax Incentive, go to http://www.epa.gov/brownfields/bftaxinc.htm. For a letter documenting cleanup, contact your state brownfields representative: