Freight railcar modernization 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.

Freight railcar modernization credit

(a)

General rule

For purposes of section 38, the freight railcar modernization credit determined under this section for the taxable year is an amount equal to 50 percent of the taxpayer’s freight railcar fleet modernization expenses.(b)

Definitions

For purposes of this section—(1)

Freight railcar fleet modernization expenses

The term freight railcar fleet modernization expenses means the sum of—(A)the qualifying railcar replacement and modernization amount,(B)the qualifying scrap amount, and(C)the qualifying railcar facility and technology modernization amount.(2)

Qualifying railcar replacement and modernization amount

The term qualifying railcar replacement and modernization amount means—(A)the basis of any qualified newly built replacement railcar placed in service by the taxpayer during the taxable year, plus(B)the qualified railcar modernization expenditures of the taxpayer for the taxable year.(3)

Qualifying scrap amount

The term qualifying scrap amount means—(A)the depreciated value or salvage value, as applicable, of a qualified freight railcar (as such value is defined and calculated in accordance with the Association of American Railroads Interchange Rules) which is scrapped by the taxpayer and permanently removed from the AAR Umler System master file during the taxable year, less(B)the sum of scrap and part out net proceeds received by the taxpayer for such qualified freight railcar. For purposes of this subparagraph, scrap proceeds shall be calculated by using the Association of American Railroads Office Manual per pound credits for steel, stainless steel, and aluminum (as applicable) in effect on the date railcar is scrapped.(4)

Qualifying railcar facility and technology modernization amount

The term qualifying railcar facility equipment and technology modernization amount means amounts paid or incurred by the taxpayer for any railcar facility and technology modernization property placed in service during the taxable year.(A)

Railcar facility and technology modernization property

The term railcar facility and technology modernization property means property—(i)chargeable to capital account,(ii)placed in service by a qualified railway supply company,(iii)the original use of which commences with the taxpayer,(iv)which is used to modernize an existing qualified facility or existing railcars, and(v)is used for modernization purposes.(B)

Modernization of existing qualified facilities or existing railcars

Property is used to modernize an existing qualified facility or an existing railcar if such property—(i)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(ii)is associated with the deployment of technological equipment used by any owner of a freight railcar, or of an existing qualified facility, to manufacture, repair, or modernize railcars, or manufacture railcar components that improve the efficiency, quality, or safety of—(I)fleet management operations, or(II)railcar or railcar component manufacturing, repair, or modernization operations conducted pursuant to activity code certifications under the Association of American Railroads Manual of Standards and Recommended Practice, Section C, Part III, Appendix B (Specification M1002) or Association of American Railroads Manual of Standards and Recommended Practice, Section J, Quality Assurance (Specification M–1003).(C)

Modernization purposes

For purposes of this paragraph, the following types of property shall be considered as used for modernization purposes—(i)testing and reliability equipment that facilitates the development of safer railcars and railcar components by AAR certified manufacturers, including accelerated life-cycle testing equipment,(ii)innovative technological equipment that generates data relating to the operating conditions of rolling stock and communicates such data in an efficient manner, with the goal of improving railcar fleet safety, including smart technology on cars to monitor conditions such as leaks, equipment damage, or high acceleration events,(iii)remote controlled technological equipment that allows for inspections, cleaning or repairs to railcars to be conducted remotely,(iv)equipment which increases the efficiency or capacity of, and enhances environmental controls related to facilities which conduct AAR certified blasting, cleaning, coating, and painting railcar activities,(v)regenerative thermal oxidizers of volatile organic compounds or hazardous air pollutants, and(vi)innovative technological equipment or software that will enhance the efficiency of a railcar owner’s fleet management systems, including programs that map timing and routing of railcars to repair shops or storage facilities that improve efficiency of rail transportation.(5)

Qualified newly built replacement railcar

The term qualified newly built replacement railcar means a qualified freight railcar which—(A)is built after the date of the enactment of this section,(B)is ordered or originally placed in service before January 1, 2025, and(C)replaces two freight railcars owned by the taxpayer that—(i)were in service within the 48 months preceding the beginning of the taxable year, and(ii)which were both scrapped and permanently removed from the AAR Umler System master file during such taxable year.(6)

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.(7)

Qualified railway supply company

The term qualified railway supply company means an entity that manufactures, repairs, modernizes or owns freight railcars or manufactures components for 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).(8)

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 was previously claimed by any taxpayer.(B)

Significant improvement

For purposes of this paragraph, an improvement in capacity or fuel efficiency and performance with respect to a modernized freight railcar is 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 modified, retrofitted, converted or rebuilt for the purpose of meeting the significant improvement criteria of subparagraph (B).(9)

Qualified railcar modernization expenditure

The term qualified railcar modernization 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.(10)

Qualified facility

The term qualified facility means a facility that is located within the United States and owned by any entity other than 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) and is unable to use such credit as an offset to the regular tax liability of such taxpayer, such 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) 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), 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 such railcar is 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), 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, 2024, or to any qualifying railcar replacement and modernization amount, or any qualifying scrap amount after December 31, 2025.

(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 freight railcar modernization 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 freight railcar modernization 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. Freight railcar modernization 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, 2021.