26 U.S.C. § 198 — Expensing of environmental remediation costs

(a) In general: A business can choose ("elect") to treat certain environmental cleanup costs as an immediate expense instead of a long-term capital cost. If a taxpayer makes this choice for a "qualified environmental remediation expenditure," the taxpayer can deduct that cost in the same year it is paid or incurred. (b) Qualified environmental remediation expenditure: (1) In general: This term means a cost that (A) would normally have to be capitalized (spread out over time) instead of deducted right away, and (B) is paid or incurred to clean up or control hazardous substances at a "qualified contaminated site." (2) Special rule for depreciable property: This term does not include money spent to buy depreciable property (property you normally deduct a little at a time) used to clean up or control hazardous substances at the site. But there's an exception: whatever part of that property's normal yearly depreciation deduction is assigned to the contaminated site still counts as a qualified environmental remediation expenditure. (c) Qualified contaminated site: (1) In general: This term means an area that (A) the taxpayer holds for business use, for producing income, or as inventory-type property under section 1221(a)(1), and (B) has had a release, a threatened release, or a disposal of a hazardous substance on it. (2) National priorities listed sites not included: The term does not include any site on, or proposed for, the federal Superfund "national priorities list." (3) Taxpayer must receive statement from State environmental agency: An area only counts as a qualified contaminated site for a given tax year if the taxpayer gets a written statement from the right state environmental agency confirming the site meets the requirement in (1)(B). (4) Appropriate State agency: Each state's governor, working with the head of the EPA, could name that state's environmental agency for this purpose within 60 days after this law took effect. If a governor didn't do that in time, the EPA Administrator named the agency instead. (d) Hazardous substance: (1) In general: This term means (A) a substance defined as "hazardous" under section 101(14) of the federal Superfund law (CERCLA); (B) a substance designated as hazardous under CERCLA section 102; and (C) any petroleum product, as defined elsewhere in the tax code. (2) Exception: The term does not include a substance if the law does not allow removal or cleanup action under CERCLA section 104, because of an exclusion in CERCLA section 104(a)(3). (e) Deduction recaptured as ordinary income on sale, etc.: This part only matters for a different tax rule, section 1245, which taxes some of the gain on selling business property as ordinary income instead of capital gain. For property that would have been capitalized if not for this section: (1) the deduction this section allowed is treated as if it were a depreciation deduction, and (2) the property is treated as "section 1245 property" — even if it normally wouldn't be — just so section 1245's recapture rule can apply to that deduction. (f) Coordination with other provisions: Two other tax rules, section 280B (about demolition costs) and section 468 (about certain reserve accounts), do not apply to amounts that are expensed under this section. (g) Regulations: The Secretary of the Treasury may write regulations needed to carry out this section. (h) Termination: This section is expired. It stopped applying to costs paid or incurred after December 31, 2011, so it no longer applies to newer expenses.