Title 26 — Internal Revenue CodeRelease 119-73not60
§198 Expensing of Environmental Remediation Costs
Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter B— Computation of Taxable Income › Part VI— ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS › § 198
Summary
You can choose to treat certain cleanup costs as regular business expenses instead of as capital investments. If you make this choice, those qualifying cleanup costs are deducted on your tax return in the year you pay them or incur them. A "qualified environmental remediation expenditure" means a cost that would normally be capital but is paid to clean up or control hazardous materials at a "qualified contaminated site." A "qualified contaminated site" is business or income property where hazardous material was released or threatened, and the state environmental agency must give a written statement saying the site meets that rule. The rule does not cover sites on or planned for the federal Superfund (NPL). Costs to buy cleanup equipment that you would normally depreciate are not covered, except the depreciation amount tied to the site. Hazardous substances follow the CERCLA and petroleum definitions, with a few limited exceptions. For tax rules in section 1245, those deductions count as depreciation and the property may be treated as section 1245 property. Sections 280B and 468 do not apply. The IRS Secretary must issue rules to carry this out. The choice cannot be used for costs paid or incurred after December 31, 2011.
Full Legal Text
Title 26, §198
Internal Revenue Code — Source: USLM XML via OLRC
(a)A taxpayer may elect to treat any qualified environmental remediation expenditure which is paid or incurred by the taxpayer as an expense which is not chargeable to capital account. Any expenditure which is so treated shall be allowed as a deduction for the taxable year in which it is paid or incurred.
(b)For purposes of this section—
(1)The term “qualified environmental remediation expenditure” means any expenditure—
(A)which is otherwise chargeable to capital account, and
(B)which is paid or incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site.
(2)Such term shall not include any expenditure for the acquisition of property of a character subject to the allowance for depreciation which is used in connection with the abatement or control of hazardous substances at a qualified contaminated site; except that the portion of the allowance under section 167 for such property which is otherwise allocated to such site shall be treated as a qualified environmental remediation expenditure.
(c)For purposes of this section—
(1)The term “qualified contaminated site” means any area—
(A)which is held by the taxpayer for use in a trade or business or for the production of income, or which is property described in section 1221(a)(1) in the hands of the taxpayer, and
(B)at or on which there has been a release (or threat of release) or disposal of any hazardous substance.
(2)Such term shall not include any site which is on, or proposed for, the national priorities list under section 105(a)(8)(B) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (as in effect on the date of the enactment of this section).
(3)An area shall be treated as a qualified contaminated site with respect to expenditures paid or incurred during any taxable year only if the taxpayer receives a statement from the appropriate agency of the State in which such area is located that such area meets the requirement of paragraph (1)(B).
(4)For purposes of paragraph (3), the chief executive officer of each State may, in consultation with the Administrator of the Environmental Protection Agency, designate the appropriate State environmental agency within 60 days of the date of the enactment of this section. If the chief executive officer of a State has not designated an appropriate environmental agency within such 60-day period, the appropriate environmental agency for such State shall be designated by the Administrator of the Environmental Protection Agency.
(d)For purposes of this section—
(1)The term “hazardous substance” means—
(A)any substance which is a hazardous substance as defined in section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
(B)any substance which is designated as a hazardous substance under section 102 of such Act, and
(C)any petroleum product (as defined in section 4612(a)(3)).
(2)Such term shall not include any substance with respect to which a removal or remedial action is not permitted under section 104 of such Act by reason of subsection (a)(3) thereof.
(e)Solely for purposes of section 1245, in the case of property to which a qualified environmental remediation expenditure would have been capitalized but for this section—
(1)the deduction allowed by this section for such expenditure shall be treated as a deduction for depreciation, and
(2)such property (if not otherwise section 1245 property) shall be treated as section 1245 property solely for purposes of applying section 1245 to such deduction.
(f)section 280B and 468 shall not apply to amounts which are treated as expenses under this section.
(g)The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
(h)This section shall not apply to expenditures paid or incurred after December 31, 2011.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsec. (c)(2), (4), is the date of enactment of Pub. L. 105–34, which was approved Aug. 5, 1997. section 101(14), 102, 104, and 105(a)(8)(B) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, referred to in subsecs. (c)(2) and (d), are classified to section 9601(14), 9602, 9604, and 9605(a)(8)(B), respectively, of Title 42, The Public Health and Welfare.
Amendments
2010—Subsec. (h). Pub. L. 111–312 substituted “
December 31, 2011” for “
December 31, 2009”. 2008—Subsec. (h). Pub. L. 110–343 substituted “
December 31, 2009” for “
December 31, 2007”. 2006—Subsec. (d)(1)(C). Pub. L. 109–432, § 109(b), added subpar. (C). Subsec. (h). Pub. L. 109–432, § 109(a), substituted “2007” for “2005”. 2004—Subsec. (h). Pub. L. 108–311 substituted “2005” for “2003”. 2000—Subsec. (c). Pub. L. 106–554, § 1(a)(7) [title I, § 162(a)], amended subsec. (c) generally. Prior to amendment, subsec. (c) defined the term “qualified contaminated site” to include certain property described in section 1221(a)(1) of this title, within a targeted area, and at which there had been a release or disposal of any hazardous substance, provided that an area could be treated as a qualified contaminated site only if the taxpayer received a certain statement from an appropriate State agency, provided for designation of appropriate State agencies, and defined targeted area. Subsec. (h). Pub. L. 106–554, § 1(a)(7) [title I, § 162(b)], substituted “2003” for “2001”. 1999—Subsec. (c)(1)(A)(i). Pub. L. 106–170, § 532(c)(2)(A), substituted “section 1221(a)(1)” for “section 1221(1)”. Subsec. (h). Pub. L. 106–170, § 511, substituted “2001” for “2000”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2010 Amendment Pub. L. 111–312, title VII, § 745(b), Dec. 17, 2010, 124 Stat. 3319, provided that: “The amendment made by this section [amending this section] shall apply to expenditures paid or incurred after December 31, 2009.”
Effective Date
of 2008 Amendment Pub. L. 110–343, div. C, title III, § 318(b), Oct. 3, 2008, 122 Stat. 3873, provided that: “The amendment made by this section [amending this section] shall apply to expenditures paid or incurred after December 31, 2007.”
Effective Date
of 2006 Amendment Pub. L. 109–432, div. A, title I, § 109(c), Dec. 20, 2006, 120 Stat. 2939, provided that: “The
Amendments
made by this section [amending this section] shall apply to expenditures paid or incurred after December 31, 2005.”
Effective Date
of 2004 Amendment Pub. L. 108–311, title III, § 308(b), Oct. 4, 2004, 118 Stat. 1179, provided that: “The amendment made by subsection (a) [amending this section] shall apply to expenditures paid or incurred after December 31, 2003.”
Effective Date
of 2000 Amendment Pub. L. 106–554, § 1(a)(7) [title I, § 162(c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–625, provided that: “The
Amendments
made by this section [amending this section] shall apply to expenditures paid or incurred after the date of the enactment of this Act [Dec. 21, 2000].”
Effective Date
of 1999 AmendmentAmendment by section 532(c)(2)(A) of Pub. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. L. 106–170, set out as a note under section 170 of this title.
Effective Date
Pub. L. 105–34, title IX, § 941(c), Aug. 5, 1997, 111 Stat. 885, provided that: “The
Amendments
made by this section [enacting this section] shall apply to expenditures paid or incurred after the date of the enactment of this Act [Aug. 5, 1997], in taxable years ending after such date.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 198
Title 26 — Internal Revenue Code
Last Updated
Apr 5, 2026
Release point: 119-73not60