Order Code RS21599
Updated October 17, 2006
CRS Report for Congress
Received through the CRS Web
Brownfields Tax Incentive Extension
Mark Reisch
Analyst in Environmental Policy
Resources, Science, and Industry Division
Summary
The brownfields tax incentive expired on December 31, 2005. Enacted in 1997,
the provision allowed a taxpayer to fully deduct the costs of environmental cleanup in
the year the costs were incurred (called “expensing”), rather than spreading the costs
over a period of years (“capitalizing”). The provision was adopted to stimulate the
cleanup and development of less seriously contaminated sites by providing a benefit to
taxpaying developers of brownfield properties. Two bills that received congressional
attention contained extensions of the provision; in one case (H.R. 4297, P.L. 109-222),
the bill was dropped in conference, and in the other (H.R. 5970), the bill passed the
House but failed in the Senate. Nevertheless, in each of its budget proposals since
FY2003, the administration has suggested that Congress make the tax incentive
permanent.
Information on the extent of use of the brownfields tax incentive cannot be
determined from federal income tax returns. However, to take advantage of the tax
break, a developer had to obtain a certification from the state environmental agency that
the site qualified as a brownfield. CRS surveyed the agencies of all states in 2003 to ask
how many applications they had received and approved. Twenty-seven states reported
that they had received brownfield tax incentive applications, for a total of 161
applications, of which 147 were approved. The other 23 states reported that they
received no requests for certification.
The brownfields1 tax incentive expired on December 31, 2005. First enacted as part
of the Taxpayer Relief Act of 1997 (P.L. 105-34), the incentive allowed a taxpayer to
fully deduct the costs of environmental cleanups in the year the costs were incurred
(called “expensing”), rather than spreading the costs over a period of years
(“capitalizing”). Its purpose was to encourage developers to rehabilitate sites where
environmental contamination stands in the way of bringing unproductive properties back
1 For purposes of the tax incentive, a brownfield site (“qualified contaminated site”) is a property
held for use in a trade or business, for the production of income, or as inventory where there has
been a release, or threat of release, or disposal of a hazardous substance. Sites on the Superfund
National Priorities List are excluded (26 U.S.C. 198(c)).
Congressional Research Service ˜ The Library of Congress

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into use. (The provision has no application for public sector entities, such as
municipalities, that develop brownfields and do not pay income taxes.) The House and
Senate versions of the Tax Reconciliation Act (H.R. 4297, P.L. 109-222) would have
extended the provision for two years and one year, respectively, but those provisions were
dropped in conference. Another bill passed by the House, the Estate Tax and Extension
of Tax Relief Act (H.R. 5970), contained the tax break, but the bill failed on a cloture
motion in the Senate.
In the case of both bills, the brownfields provision was one of a number of
extensions of expiring tax credits, deductions, and taxpayer benefits that were all
considered and dropped together. (For more information, see CRS Report RL32367,
Temporary Tax Provisions (“Extenders”) Expired in 2005, by Pamela Jackson.) It is
possible, however, that the brownfields tax break will reappear, either independently or
as part of another legislative vehicle.
To take advantage of the brownfields tax incentive, the developer of a property had
to obtain a statement from the state environmental agency that the parcel is a “qualified
contaminated site” as defined in the 1997 law. Because the brownfields tax deduction did
not have its own separate line on either individual or corporate federal income tax returns,
the only sources of information on the extent of use of the incentive are the state agencies
that certify that the properties are indeed brownfields. CRS surveyed the appropriate
agencies in each state in 2003 to determine the number of brownfield certifications they
had issued. Twenty-seven states reported that they had received requests for certification,
for a total of 161 requests, of which 147 were approved. Twenty-three states reported
receiving no formal requests. The state-by-state responses are presented in the table at the
end of this report.
Background. Federal tax law generally requires that the cost of improvements to
a property must be deducted over a period of years, whereas other expenses, such as
repairs, may be deducted in the same year they are incurred. Being able to deduct the
costs when incurred is a financial benefit to the taxpayer. A 1994 ruling by the Internal
Revenue Service2 (IRS) held that the costs of cleaning up contaminated land and
groundwater are deductible in the current year, but only for the person who contaminated
the land. In addition, the cleanup would have to be done without any anticipation of
putting the land to a new use. Further, any monitoring equipment with a useful life
beyond the year it was acquired would have to be capitalized. On the other hand, a person
who acquired previously contaminated land, such as a brownfield site, would have to
capitalize the costs of cleanup, spreading them out over a number of years.
Cleanup costs are a major barrier to redevelopment of contaminated land. The
Taxpayer Relief Act of 1997, which included the brownfields tax incentive, thus had the
effect of expanding benefits and allowing developers who had not caused the
contamination to deduct cleanup costs from their taxable income in the current year,
rather than having to capitalize them.
As initially enacted, the brownfields tax incentive was available only to a property
that was located in a “targeted area.” The law defined a targeted area as a census tract
2 Revenue Ruling 94-38.

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with greater than 20% poverty, an adjacent commercial or industrial census tract, an
Empowerment Zone or Enterprise Community, or one of the 76 brownfields to which the
Environmental Protection Agency (EPA) had awarded a brownfield grant at that time.
The Consolidated Appropriations Act, 2001 (P.L. 106-170) repealed the targeted area
geographic restrictions and extended the tax break to all brownfields (“qualified
contaminated sites”).
The tax incentive is subject to recapture, which mandates that the gain realized from
the value of the property when it is later sold be taxed as ordinary income (rather than at
the generally lower capital gains rate) to the extent of the expensing allowance previously
claimed. This dilutes the benefit of the tax break and has the effect of postponing a certain
amount of the developer’s tax liability until the property is resold. As a stimulus to
development, the overall value of the brownfields tax break is dependent on a number of
factors, including the total cost of the project, the cost of cleanup, how long the developer
intends to hold the property before selling it, and the developer’s individual tax situation.
Since FY2003, the Bush administration’s budget proposals have proposed making
the tax incentive permanent. It was in effect continuously from its enactment through
December 31, 2005, and had been extended three times, most recently in the Working
Families Tax Relief Act of 2004, P.L. 108-3113 (title III, §308(a)). This extension
through 2005, which was enacted on October 4, 2004, was made retroactive to December
31, 2003, when the previous extension expired.
Survey Findings. The CRS survey, conducted between April and June 2003,
found that a total of 161 brownfield tax incentive applications were made in 27 states.
Of those, 147 were approved and 14 were denied. Seven states had 10 or more
applications: Wisconsin had 20; Massachusetts, 17; Delaware, 16; New York, 14;
Virginia, 11; and Michigan and Pennsylvania, 10 each. Thirteen states had one to three
applications.
Twenty-three states reported that they had received no applications for certification.
Many in that group said they had received inquiries but no formal applications, and some
of those states added that they had made efforts to publicize the availability of the tax
incentive through their websites and at in-person presentations at various meetings.
Table 1, below, presents the results of the survey in detail. The 23 states that
reported receiving no applications were:
Alabama
Kansas
North Dakota
Alaska
Maine
Oklahoma
Arizona
Mississippi
South Carolina
Arkansas
Montana
South Dakota
3 The other renewals were in the Ticket to Work and Work Incentives Improvement Act of 1999,
P.L. 106-170 (title V, §511); and in the Consolidated Appropriations Act, 2001, P.L. 106-554
(Appendix G, title I, §162).

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Colorado
Nebraska
Utah
Hawaii
Nevada
West Virginia
Idaho
New Hampshire
Wyoming
Iowa
New Mexico
Table 1. Applications for Certification for the
Brownfields Tax Incentive
Number of Applications
Average
Reasons for
Estimated
State
Denial
Time for
Received
Granted
Denied
Decision
California
7
6
1
Site was not in a 12 days
targeted area
Connecticut
1
1
0
n.a.
Not
available
Delaware
16
14
2
One property
Not
was not a
available
brownfield; at
the other, the
owner did not
qualify
Florida
2
2
0
n.a.
Less than 30
days
Georgia
1
1
0
n.a.
3 days
Illinois
3
3
0
n.a.
About 1
week
Indiana
4
4
0
n.a.
30 days
Kentucky
1
1
0
n.a.
About 3
weeks
Louisiana
1
1
0
n.a.
1 or 2 days
Maryland
2
2
0
n.a.
About 2
weeks
Massachusetts
17
16
1
Site did not
5-10 days
contain a
hazardous
substance
Michigan
10
9
1
Lead
14 calendar
contaminant
days
level did not
exceed state’s
background
level criteria

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Number of Applications
Average
Reasons for
Estimated
State
Denial
Time for
Received
Granted
Denied
Decision
Minnesota
3
2
1
Site was not in a 1 week
targeted area
Missouri
6
6
0
n.a.
Within 30
days
New Jersey
2
2
0
n.a.
About 1
week
New York
14
10
4
Sites did not
19 days
meet the
definition of
“qualified
contaminated
site”
North Carolina
2
2
0
n.a.
Within 2
weeks
Ohio
5
5
0
n.a.
60 days
Oregon
4
4
0
n.a.
About 3 days
Pennsylvania
10
10
0
n.a.
5-8 business
days
Rhode Island
3
0
3
Two sites were
Within 2
not in a targeted weeks
area; the other
did not meet the
definition of
“qualified
contaminated
site”
Tennessee
2
2
0
n.a.
7 working
days
Texas
8
8
0
n.a.
About 2
weeks
Vermont
1
1
0
n.a.
1 or 2 days
Virginia
11
10
1
Site was not in a Less than 2
targeted area
weeks
Washington
5
5
0
n.a.
Same day
Wisconsin
20
20
0
n.a.
About 2
weeks
Note: n.a. = Not applicable.

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