S. 1536 — Building Ships in America Act of 2025

This section designates the Act as the "Building Ships in America Act of 2025" and sets forth the table of contents.

This section establishes a new United States vessel investment tax credit under IRC section 48F (in subpart E of part IV of subchapter A of chapter 1), equal to up to 40% (33% base rate, plus 5% for protection and indemnity insurance from a U.S.-domiciled and headquartered underwriter approved by the Maritime Administrator, plus 2% for classification by the American Bureau of Shipping or another U.S.-headquartered society recognized by the Coast Guard Secretary) of qualified investments. Qualified investments are amounts paid or incurred for construction, repowering, or reconstruction of a qualified vessel in a U.S. shipyard by an entity that is not a foreign entity of concern. A qualified vessel is a U.S.-flag cargo vessel (not a passenger vessel) operating in U.S. foreign trade—specifically a bulk carrier, tanker, roll-on/roll-off, container, multi-purpose, cable, heavy-lift vessel, or other type deemed appropriate by the Maritime Administrator—that (1) if repowered or reconstructed, was originally U.S.-constructed; (2) is subject to a 10-year operating agreement with the Maritime Administrator; (3) has an emergency preparedness agreement under 46 U.S.C. §§53107 or 53407, a contingency agreement under §53207, or a voluntary agreement under §708(c) of the Defense Production Act; and (4) has construction beginning before January 1, 2033. Qualified vessels exclude any previously owned or operated by, constructed/repowered/reconstructed in a shipyard of, or previously registered in a foreign country of concern by a foreign entity of concern. The section defines foreign country of concern (covered nations under 10 U.S.C. §4872(d) or others determined detrimental to U.S. national security or foreign policy) and foreign entity of concern (incorporating "foreign principal," "agent," and related terms from the Foreign Agents Registration Act, 22 U.S.C. §611, plus ownership/control thresholds including 25% equity interests).

This section establishes a new exclusion from gross income (IRC §139J) for payments made pursuant to 46 U.S.C. §§53106 (annual payments to operators of U.S.-flag vessels under the Maritime Security Program), 53206, 53406, 54101, or 54301. It denies deductions or credits for related expenditures and reduces the adjusted basis of related property (effective for taxable years beginning after enactment).

This section eliminates the 30-day limitation on domestic operations under IRC §1355(f)(4) and (g)(2)(D), thereby expanding eligibility for the special election allowing certain insurance companies to treat related person insurance income as effectively connected with a U.S. trade or business for foreign tax credit purposes. (As background, the election enables an aggregated, company-wide computation of the foreign tax credit limitation rather than branch-by-branch, benefiting primarily internationally focused insurance companies.) The amendments apply to taxable years beginning after the date of enactment.

This section redefines qualifying shipping activities under the Internal Revenue Code's tonnage tax regime (26 U.S.C. §1356(b)) as the carriage of goods—as defined in section 1 of the Carriage of Goods by Sea Act—by a qualifying vessel (from activities in operating such a vessel). (As background, the tonnage tax regime allows U.S.-flag and certain foreign-flag shipping companies operating in U.S. foreign commerce to elect taxation of qualifying shipping income based on vessel net tonnage rather than net earnings.)

This section revises the definition of qualifying vessel in IRC §1355(a)(4)—which determines eligibility for the tax election to defer gain recognition on the sale or exchange of a vessel if replaced by another qualifying vessel within the required period—(1) to require that the vessel be self-propelled (or a combination self-propelled/non-self-propelled), (2) to include United States flag vessels or United States-owned foreign flag vessels (newly defined), (3) to require either a design primarily for high seas use with a draft of more than 12 feet or at least 6,000 deadweight tons, and (4) to require exclusive use in United States foreign trade during the election period. It also adds IRC §1355(a)(8) defining United States-owned foreign flag vessel as one documented under the laws of a non-United States country or registry that is not a foreign country of concern (per IRC §48F(e)), owned by a United States citizen (as defined in 46 U.S.C. §50501) or controlled (per IRC §954(d)(3)) by such a citizen who owns a fleet of United States flag vessels, strategically and commercially managed from the United States, and party to an emergency preparedness agreement (46 U.S.C. §§53107, 53407), contingency agreement (46 U.S.C. §53207), or voluntary agreement with the Maritime Administrator under the Defense Production Act (50 U.S.C. §4558(c)).

This section establishes a shipyard investment tax credit equal to 25% of the qualified investment (i.e., basis of qualified property placed in service) with respect to any qualified shipyard facility of an eligible taxpayer (as described in section 48D(c)(1)), for property placed in service after December 31, 2025, and before January 1, 2033. Qualified property has the meaning given in section 48D(b)(2), with "qualified shipyard facility" substituted for "advanced manufacturing facility"; a qualified shipyard facility is a U.S.-located facility (including territories) primarily used for constructing or repairing commercial or military oceangoing vessels, manufacturing critical components for such vessels (as determined by the Secretary in consultation with the Secretary of the Navy and Maritime Administrator), or manufacturing equipment to produce or repair such vessels. The credit incorporates progress expenditure rules similar to prior section 46(c)(4) and (d), denies a double benefit with the clean vessel investment credit under section 48F, and is subject to basis reduction (sec. 49), amortization (sec. 50), elective payment (sec. 6417), and transferability (sec. 6418) rules. This section also excepts the shipyard investment tax credit and clean vessel investment credit from the alternative tax on qualifying shipping activities (sec. 1357(c)(4)).

This section revises the tax treatment of capital construction funds (CCFs) under IRC §7518, which allow eligible U.S.-flag vessel operators to defer income taxes on specified deposits for use in qualified vessel acquisition, construction, or related investments. Specifically, it (1) limits allowable deposits to amounts specified in the related agreement under 46 U.S.C. ch. 535 and tied to commitments for new vessel construction or cargo handling equipment; (2) expands the definition of qualifying fund revenue to include operational income, disposition proceeds, investment receipts, and depreciation deductions for agreement vessels or equipment; (3) expands qualified withdrawals to include costs for acquiring, constructing, repowering, or reconstructing qualified vessels, related barges/containers (generally U.S.-built), or cargo handling equipment, or repaying related indebtedness, while prohibiting withdrawals for fully automated cargo handling equipment likely to cause net job losses at marine terminals or for cranes manufactured in the People's Republic of China; (4) makes conforming additions of "cargo handling equipment" throughout provisions on fund usage and withdrawals; (5) accelerates taxation of amounts remaining in the fund unused for qualified purposes, applying graduated rates beginning in the 16th taxable year at 20% and reaching 100% by the 20th taxable year (previously beginning in the 26th through 30th years at lower rates through the 25th year); and (6) removes the prior-law reference limiting the scope of the agreement vessels. The amendments apply to taxable years beginning after December 31, 2025.

This section excludes from gross income student incentive payments made pursuant to agreements under 46 U.S.C. 51509 (i.e., up to $16,000 per academic year for up to four years, not to exceed $64,000 total, to U.S. citizen students at state maritime academies to cover uniforms, tuition, books, and subsistence in exchange for obtaining a merchant mariner officer license and maintaining reserve status). The exclusion applies to payments made after December 31, 2025.

This section extends the exemption under IRC §4041(g)(1) from the diesel fuel and kerosene excise tax—for purposes of §4041(a)(2)—to fuel sold for use or used by vessels described in IRC §4042(c)(1) that are actually engaged in trade between Atlantic or Pacific ports of the United States (including territories), effective after December 31, 2025. (Thus, it provides such maritime fuel with tax parity to Great Lakes vessel fuel.)

This section establishes maritime prosperity zones—population census tracts designated by the Secretary of the Treasury upon nomination by the Maritime Administrator (in consultation with the Secretary of the Navy) as viable sites for U.S. shipyards, ports, or harbor facilities, limited to 100 tracts each designated for five years—and treats them as qualified opportunity zones (QOZs) under the Opportunity Zone tax incentive program. (As background, QOZs, enacted in 2017, allow investors via qualified opportunity funds to defer capital gains taxes on investments in designated low-income census tracts, with basis increases after five or seven years and potential permanent exclusion of post-investment appreciation after 10 years.) For these zones, the section applies modified rules under §1400Z–2(d) by (1) substituting the date of enactment of this Act for December 31, 2017, as the start date for substantial improvement periods; and (2) limiting qualified opportunity zone business property and qualified opportunity zone businesses to those substantially used in or operating in specified maritime industries under the North American Industrial Classification System (NAICS codes 483111 [deep sea freight transportation], 483113 [coastal and Great Lakes freight transportation], 483211 [inland water freight transportation], 4883 [support activities for water transportation], and 3366 [ship and boat building]).