Order Code RS21599
Updated January 19, 2007
Brownfields Tax Incentive Extension
Mark Reisch
Analyst in Environmental Policy
Resources, Science, and Industry Division
Summary
The brownfields tax incentive expires on December 31, 2007. 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. In each of its budget proposals since FY2003, the
administration has suggested that Congress make the tax incentive permanent. The 109th
Congress renewed the provision through 2007 (P.L. 109-432) and made it effective
retroactively to December 31, 2005, when the previous extension expired. The law also
made sites contaminated by petroleum products eligible for the tax incentive. The 110th
Congress may wish to consider another extension, or making the incentive permanent,
as well as considering repeal of the recapture requirement.
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 has to obtain a certification from the state environmental agency that
the site qualifies 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 expires on December 31, 2007. First enacted as part
of the Taxpayer Relief Act of 1997 (P.L. 105-34), the incentive allows 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 is to encourage developers to rehabilitate sites where environmental
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)).

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contamination stands in the way of bringing unproductive properties back into use. (The
provision has no application for public sector entities, such as municipalities, that develop
brownfields and do not pay income taxes.)
To take advantage of the brownfields tax incentive, the developer of a property has
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
does 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
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”).
A significant drawback of the tax incentive is that it is subject to “recapture.” This
means that the gain realized from the value of the property when it is later sold must 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
2 Revenue Ruling 94-38.

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break and has the effect of simply 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. Repeal of the recapture
provision has been favored by the Real Estate Roundtable and its partner associations
representing various aspects of the real estate industry (architects, building owners and
managers, mortgage bankers, general contractors, and others).
Since FY2003, the Administration’s budget proposals have proposed making the tax
incentive permanent. It has been in effect continuously since its enactment in 1997 and
has been extended four times, most recently in the Tax Relief and Health Care Act of
2006, P.L. 109-432 (Division A, title I, § 109).3 This extension through 2007, which was
enacted on December 20, 2006, was made retroactive to December 31, 2005, when the
previous extension expired. The EPA supports the permanent extension, as does the Real
Estate Roundtable and its partners noted above.
This enactment also broadened the definition of hazardous substances, for purposes
of the tax incentive, to include petroleum products (including crude oil, crude oil
condensates, and natural gasoline).
The brownfields provision is one of a number of tax credits, deductions, and
taxpayer benefits that were considered together. For more information, see CRS Report
RL32367, Temporary Tax Provisions (“Extenders”) Expired in 2005, by Pamela Jackson.
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:
3 The other renewals were in the Ticket to Work and Work Incentives Improvement Act of 1999,
P.L. 106-170 (title V, §511); in the Consolidated Appropriations Act, 2001, P.L. 106-554
(Appendix G, title I, §162); and in the Working Families Tax Relief Act of 2004, P.L. 108-311
(title III, §308(a)).

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Alabama
Kansas
North Dakota
Alaska
Maine
Oklahoma
Arizona
Mississippi
South Carolina
Arkansas
Montana
South Dakota
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

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Number of Applications
Average
Reasons for
Estimated
State
Denial
Time for
Received
Granted
Denied
Decision
Michigan
10
9
1
Lead
14 calendar
contaminant
days
level did not
exceed state’s
background
level criteria
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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