Qualified freight railcar credit

(a)

In general

Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

45U.

Qualified freight railcar credit

(a)

General rule

For purposes of section 38, the qualified freight railcar credit determined under this section for the taxable year is an amount equal to 50 percent of the sum of—(1)the qualifying replacement or modernization amount,(2)the qualifying scrap amount, and(3)the qualifying railcar facility and technology modernization amount. (b)

Definitions

In this section—(1)

Qualifying replacement or modernization amount

The term qualifying replacement or modernization amount means—(A)the basis of any newly built qualified freight railcar placed in service by the taxpayer during the taxable year, plus(B)the qualified freight railcar modernization expenditures of the taxpayer for the taxable year.(2)

Qualifying scrap amount

The term qualifying scrap amount means— (A)the depreciated value of a qualified freight railcar, as such value is defined and calculated in accordance with the Association of American Railroads Interchange Rules, less(B)the sum of scrap and part out net proceeds received by the taxpayer for such qualified freight railcar.(3)

Qualifying railcar facility and technology modernization amount

The term qualifying railcar facility equipment and technology modernization amount means total expenditures chargeable to capital account by a qualified railway supply company—(A)for re-equipping and enhancing the infrastructure of an existing qualified facility for the manufacture, repair, or modernization of railcars, which—(i)enables such facility, after such improvements, to modernize railcars such that they will meet the requirements of the Association of American Railroads Standard S–286 or the design standards set forth in the Pipeline and Hazardous Materials Safety Administration’s HM–251 final rule (as amended by HM–251C), or(ii)enables such facility to implement enhanced controls to meet environmental standards including emissions limits under the Clean Air Act or wastewater standards under the Clean Water Act and corresponding state/local requirements, or(B)is associated with the deployment of technology, including equipment, used by any owner of a qualified freight railcar or an existing qualified facility to manufacture, repair, or modernize railcars or to manufacture railcar components that improves the efficiency, quality, or safety of railcar or railcar component manufacturing, repair, modernization or fleet management operations.(4)

Newly built replacement railcar

The term newly built replacement railcar means a qualified freight railcar which—(A)is built after the date of the enactment of this section, and(B)is ordered or originally placed in service before January 1, 2025.(5)

Originates

The term originates refers to the country of origin of a part, component, subassembly or finished product, as described in the Rules of Origin of Article 4.2 of the United States–Mexico–Canada Agreement (19 U.S.C. 4531(c)) or any subsequent free trade agreement between the United States, Mexico, and Canada.(6)

Qualified railway supply company

The term qualified railway supply company means an entity that manufactures, repairs, modernizes or owns a qualified freight railcar or manufactures components for qualified freight railcars, that is not an entity that would be ineligible for an award of a contract or subcontract under 49 U.S.C. 5323(u).(7)

Qualified freight railcar

(A)

In general

The term qualified freight railcar means a freight railcar that—(i)is either acquired or modernized by the taxpayer after the date of the enactment of this section, (ii)meets the significant improvement requirements for capacity, fuel efficiency, or performance of subparagraph (B), (iii)originates from a qualified railway supply company and was built in a qualified facility, and(iv)with respect to which no credit under this section has been previously claimed by any taxpayer. (B)

Significant improvement requirements

(i)

In general

A freight railcar shall be treated as meeting significant improvement requirements for capacity, fuel efficiency, or performance if—(I)in the case of a newly built replacement railcar, the taxpayer certifies—(aa) such railcar is owned by the taxpayer, and(bb)that—(AA)such railcar replaces two freight railcars owned by the taxpayer that were in service within the 48 months preceding the taxable year, and (BB)such freight railcars were scrapped and permanently removed from the AAR Umler System master file during the taxable year, and(II)in the case of a freight railcar that is modernized, the taxpayer certifies that the modernization has resulted in a significant improvement in capacity, fuel efficiency or performance.(ii)

Significant improvement

For purposes of this paragraph, an improvement in capacity or fuel efficiency and performance with respect to a modernized freight railcar shall be treated as a significant improvement if—(I)such capacity or fuel efficiency, as the case may be, is increased by at least 8 percent, or(II)in the case of performance, the qualified freight railcar meets the requirements of the Association of American Railroads Standard S–286 or is modernized to meet the design standards set forth in final rule HM–251 of the Pipeline and Hazardous Materials Safety Administration (as amended by HM–251C).(C)

Modernized

The term modernized means a modification, retrofit, conversion or rebuild for the purpose of meeting capacity, fuel efficiency, or performance criteria identified in subparagraph (B)(ii).(8)

Qualified freight railcar modernization expenditure

The term qualified freight railcar significant improvement expenditure means any amount paid or incurred—(A)in connection with the modernization of a freight railcar resulting in such railcar being designated a qualified freight railcar, and(B)which is properly chargeable to a capital account with respect to such freight railcar.(9)

Qualified facility

The term qualified facility means a facility that is not owned by an entity that would be ineligible for an award of a contract or subcontract under 49 U.S.C. 5323(u).(c)

Special rules

(1)

Denial of double benefit

No credit shall be allowed under subsection (a) for any expense for which a deduction or credit is allowed under any other provision of this chapter.(2)

Credit treated as refundable

In the case of any taxable year in which the taxpayer is allowed a credit under subsection (a)(1) and is unable to utilize such credit as an offset to their regular tax liability, the taxpayer may elect to have such credit treated as an overpayment and refunded to the taxpayer for such year.(3)

Basis adjustment

For purposes of this subtitle, if a credit is allowed under subsection (a)(1) with respect to any qualified freight railcar, the basis of such railcar shall be reduced by the amount of the credit so allowed.(4)

Sale-leaseback

For purposes of subsection (a)(1), if any qualified freight railcar is—(A)originally placed in service by a person after the date of the enactment of this section, and(B)sold and leased back by such person within 3 months after the railcars are originally placed in service (or, in the case of more than one railcar subject to the same lease, within 3 months after the date the final railcar is placed in service, so long as the period between the time the first railcar is placed in service and the time the last railcar is placed in service does not exceed 24 months),

such railcar shall be treated as originally placed in service not earlier than the date on which such railcar is used under the leaseback referred to in this paragraph.

(5)

Syndication

For purposes of subsection (a)(1), if—(A)any qualified freight railcar is originally placed in service after the date of enactment of this section by the lessor of such railcar,(B)such railcar is sold by such lessor or any subsequent purchaser within 3 months after the date such railcar was originally placed in service (or, in the case of more than one railcar subject to the same lease, within 3 months after the date the final railcar is placed in service and the time the last railcar is placed in service does not exceed 12 months), and(C)the user of such railcar after the last sale during such 3-month period remains the same as when such railcar was originally placed in service, such railcars shall be treated as originally placed in service not earlier than the date of such last sale.(6)

Entities owned or controlled by state-owned enterprises ineligible

No credit under subsection (a) shall be allowed to any taxpayer that would be ineligible for an award of a contract or subcontract under 49 U.S.C. 5323(u).(d)

Termination

This section shall not apply to any qualifying railcar facility equipment and technology modernization amount after December 31, 2023, or to any qualifying replacement or modernization amount, or any qualifying scrap amount after December 31, 2024.

(b)

Credit allowed as business credit

Section 38(b) of the Internal Revenue Code of 1986 (relating to current year business credit) is amended by striking plus at the end of paragraph (32), by striking the period at the end of paragraph (33) and inserting , plus and by inserting at the end thereof the following new paragraph:

(34)the qualified freight railcar credit determined under section 45U.

(c)

Coordination with section 55

Section 38(c)(4)(B) of the Internal Revenue Code of 1986 is amended by redesignating clauses (x), (xi), and (xii) as clauses (xi), (xii), and (xiii) respectively, and by inserting after clause (ix) the following new clause:

(x)the qualified freight railcar credit determined under section 45U,

(d)

Clerical amendment

The table of sections for subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 45T the following new item:

Sec. 45U. Qualified freight railcar credit.

(e)

Effective date

The amendments made by this section shall apply to property placed in service, and amounts paid or incurred, after April 30, 2020.