This deduction provides businesses with an incentive to clean up
certain sites that are contaminated with hazardous substances. Your
business does not have to be in an empowerment zone, enterprise
community, or renewal community to qualify for this deduction.
You can choose to deduct "qualified environmental cleanup costs"
in the tax year you pay or incur the cost. You can do this instead of
adding the cost to the basis of your property (and, if the property is
depreciable, recovering the cost by taking depreciation deductions
over a specified recovery period).
This special tax treatment is generally available for qualified
environmental cleanup costs you pay or incur after August 5, 1997, and
before January 1, 2004.
Qualified environmental cleanup costs.
Qualified environmental cleanup costs are generally costs you pay
or incur to abate or control a hazardous substance (as defined by
Internal Revenue Code section 198(d)) at a "qualified contaminated
site."
Qualified contaminated site.
A qualified contaminated site must meet both of the following
requirements.
- You hold it for use in a trade or business, for the
production of income, or as inventory.
- There has been a release, threat of release, or disposal of
a hazardous substance at or on the site.
You must get a statement from the designated state
environmental agency that the site meets requirement (2).
A site is not eligible if it 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. To
find out if a site is on the national priorities list, contact the
U.S. Environmental Protection Agency.
Recapture.
This deduction may have to be recaptured as ordinary income under
section 1245 when you sell or otherwise dispose of the property that
would have received an addition to basis if you had not elected this
deduction.
More information.
For more information about the environmental cleanup cost
deduction, see section 198 of the Internal Revenue Code.
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