§198 Expensing of Environmental Remediation Costs

Summary

Taxpayers may choose to treat certain cleanup costs as ordinary business expenses and deduct them in the year they are paid or incurred. The choice applies to costs that would normally be capitalized but are spent to remove or control hazardous substances at a contaminated site. Buying depreciable equipment for the cleanup is not covered, but the part of the depreciation tied to the site can count as a cleanup expense. A qualified contaminated site is property used in a trade or business, held to make income, or a certain kind of capital asset, where a hazardous substance was released or threatened. Sites on the federal Superfund National Priorities List are excluded. The taxpayer must get a written statement from the state environmental agency saying the site meets the contamination rule. A state’s chief executive had 60 days after the law passed to name the agency that issues those statements; if they did not, the EPA Administrator names it. “Hazardous substance” means substances listed under the Superfund law and petroleum products, except those where cleanup is not allowed under that law. For tax recapture rules, the deduction is treated as depreciation and the property is treated as Section 1245 property for that purpose. Sections 280B and 468 do not apply to amounts treated under this rule. The Secretary must write rules to carry this out. This rule does not apply to costs paid or incurred after December 31, 2011.