§2. Freight railcar modernization credit
This section establishes a new freight railcar modernization credit under section 45BB of the Internal Revenue Code, equal to 10 percent of a taxpayer’s freight railcar fleet modernization expenses for the taxable year. The credit is limited to no more than 1,000 qualified freight railcars per taxpayer per taxable year and applies only to railcars built, acquired, or modernized after enactment. As background, the credit is designed to encourage replacement of older freight railcars and modernization of existing railcars to improve capacity, fuel efficiency, or performance.
This section defines a qualified newly built replacement railcar as a qualified freight railcar built after enactment, ordered or originally placed in service before the date that is 3 years after enactment, and replacing 2 freight railcars owned by the taxpayer that were in service within the preceding 48 months and were both scrapped and permanently removed from the AAR Umler System master file during the taxable year. It defines a qualified freight railcar as one that is acquired or modernized after enactment, meets significant improvement standards, is built in a qualified facility, and has not previously generated a credit under this section. For modernized railcars, the provision requires at least an 8 percent increase in capacity or fuel efficiency, or compliance with Association of American Railroads Standard S–286 or Pipeline and Hazardous Materials Safety Administration design standards under final rule HM–251, as amended by HM–251C.
This section defines freight railcar fleet modernization expenses as the sum of the basis of qualified newly built replacement railcars placed in service during the taxable year and qualified railcar modernization expenditures. It also defines qualified railcar modernization expenditures as amounts paid or incurred for modernization that results in a railcar becoming a qualified freight railcar and that are properly chargeable to capital account. It defines a qualified facility as a facility not owned or leased by an entity ineligible for a contract or subcontract award under 49 U.S.C. 5323(u).
This section denies a double tax benefit by prohibiting the credit for any expense already deducted or credited under another provision of the Internal Revenue Code and requires a basis reduction equal to the amount of the credit claimed. It also includes anti-abuse rules for sale-leaseback and syndication transactions, treating certain railcars as placed in service on the date of leaseback or last sale rather than the earlier original service date. It further denies the credit to taxpayers ineligible for a contract or subcontract award under 49 U.S.C. 5323(u).
This section terminates the credit for any qualifying railcar replacement and modernization amount after the date that is 3 years after enactment. (Thus, taxpayers may claim the credit only for qualifying railcar investments made during the 3-year period following enactment.)