On November 16, 2023, Congressman Mike Turner (R-OH-10) and Mikie Sherill (D-NJ-11) reintroduced the bipartisan Brownfields Redevelopment Tax Incentive Reauthorization Act (H.R. 6438) (BRTIRA). BRTIRA is designed to provide greater incentives for brownfield remediation projects . As Congressman Turner stated himself, “
“Brownfields redevelopment are great opportunities to take abandoned and even environmentally hazardous sites and transform them into new business opportunities and community spaces that provide critical flood mitigation and contamination cleanup. Unfortunately, the high costs associated with redevelopment make it difficult to move projects forward. That’s why I’m introducing this bipartisan bill to offset the cost of revitalizing these sites. These projects will in turn create jobs, expand opportunities for businesses, and increase property values,” […] With this tax credit, we will be able to build on that success and create new opportunities for housing, infrastructure, business, and recreation.”
If BRTIRA is approved, taxpayers would be able to fully deduct qualified costs paid or incurred between January 1, 2023 and December 31, 2026. The legislation would generally restore section 198 of the Internal Revenue Code, which Congress created in 1997 through the Taxpayer Relief Act of 1997, and failed to reauthorize after 2011. In combination with other federal, state and local incentives, BRTIRA would help make brownfield sites more appealing for redevelopment and competitive with greenfield sites, especially since brownfield sites may be more central to existing population, workforce and existing infrastructure than greenfield sites.
Brownfield Incentives Generally
Brownfield tax incentives provide substantial opportunity for the assessment, remediation and redevelopment projects of abandoned land, vacant land, and blighted areas. Specifically, the brownfield tax incentives aim to encourage cleanup and redevelopment of brownfields by reducing the cost of eligible cleanup expenses. Generally, a brownfield site is defined as a property where expansion, redevelopment or reuse is complicated by known or potential releases of hazardous substances, pollutants, contaminants. The United States Environmental Protection Agency (“EPA”), which has substantial resources devoted to brownfields programs, has estimated that there are an estimated 450,000 to 1 million brownfields in the United States.
The EPA has numerous programs to fund brownfield assessment, remediation and redevelopment activities. EPA provides funding for brownfields assessment, cleanup, revolving loans, environmental job training, technical assistance, training, and research through its Brownfields Program.
To learn more about Ohio’s Brownfield Remediation Program, see https://kjk.com/2023/07/06/ohio-enacts-the-brownfield-remediation-program/.
Overview of Federal Brownfields Tax Incentive Programs
At the Federal level, there are several brownfield tax incentives. The brownfields expensing tax incentive reduces taxable income by the cost of eligible cleanup expenses in the year the expenses are incurred. There are three qualification requirements:
- The property is owned by the taxpayer incurring the eligible cleanup expenses, and used in a trade or business for the production of income;
- Hazardous substances or petroleum contamination must be present or potentially on the property; and
- Taxpayers must obtain a statement from a designated state agency that confirms the site is a brownfield site eligible for tax incentives. Participation in the state’s voluntary cleanup program satisfies this requirement.
As it currently stands, the EPA published guidance requires eligible costs to be associated with “activities that control the release or disposal of a hazardous substance or petroleum contamination, or activities that abate the threat of a release or disposal of a hazardous substance or petroleum contamination.”
However, if BRTIRA is approved, taxpayers will be able to fully deduct qualified remediation expenditures for the cleanup of a property if the property was used for trade, business, or producing income. Further, the eligible costs include any expenditures paid or incurred in connection with the abatement of hazardous substances at a qualified contaminated site, and otherwise chargeable to the capital account. I.R.C. §198(b)(1). Specifically, the qualified contamination sites will require:
- The property is held by the taxpayer for use in business or for the production of income (or which is property of a kind that would property be included in inventory)
- It has had a release (or threat of release) or disposal of any hazardous substance. I.R.C. §198(c)(1).
Additionally, in order to receive treatment as a qualified contaminated site, taxpayers must receive a statement from a state agency verifying the presence of hazardous substance(s) as defined under the statute in I.R.C. §198(d)(1).
Other Federal brownfield incentives not necessarily associated with environmental contamination are New Markets Tax Credits which target distressed communities, Low Income Housing Tax Credits, Historic Preservation Tax Incentives, and energy efficiency and renewable energy credits, which have been recently enhanced through the Inflation Reduction Act.
Benefits of Brownfield Redevelopment
A recent EPA commissioned study found that every $1 of EPA brownfields funds spent on assessment and cleanup activities leveraged an additional $19.78. Additionally, the study found that “brownfields are often ‘location-efficient’ due to their central location and connections to existing infrastructure; significant new expected job and housing growth could be supported on brownfields; redeveloping brownfields enormously reduces the amount of impervious surface expansion; brownfield redevelopment in densely populated areas leads to shorter commutes, resulting in enhanced outcomes for water and air quality; increases in residential property value ranging from 5% to 15% within 1.29 miles of former brownfields.
Brownfield Redevelopment Benefits
- Increased potential for positive network effects
- Job creation and economic development
- Removal of blight
- Reduced legacy cost burdens
- Increased neighborhood appeal
- Increased property value
- Increased health outcomes
- Enhanced sustainability outcomes
- Creation of community or private development site
- Potential reductions in crime and poverty
Unlocking The Potential Of Brownfield Incentives for Redevelopment
Technological advances and changing tastes over the years have thrusted urban property development into a new era with a plethora of vacant, contaminated sites and little new, undeveloped property. Brownfield remediation programs provide businesses with ample opportunities to unlock opportunities available in blighted land and buildings and, in the process, broaden their prospective business opportunities. Although brownfield projects appear relatively complex and difficult, it is crucial to understand there are numerous resources and advisors to guide you through the planning and strategizing of your brownfield redevelopment projects, including how to use the federal and state tax incentives and navigate compliance requirements.
Ultimately, brownfield tax incentives provide an opportunity to garner projects which have a positive economic impact on blighted or abandoned areas while broadening the type of business opportunities available in a time where new, vacant land is harder to find. KJK’s Economic Development & Incentives attorneys can help navigate the planning for brownfield projects to maximize the potential grants and tax incentives available. To learn more about how you can benefit, contact KJK’s Economic Development & Incentives Team Rich Morehouse (RAM@kjk.com; 216.736.7292), Charlie Bolton (firstname.lastname@example.org; 216.736.7249), or Hannah Albion (HRA@kjk.com; 216.736.7268).