For a property developer, commercial property owner, business owner, or nonprofit looking to clean up a contaminated site or restore property in an economically distressed area (EDA), there are attractive financial incentives to help get the job done. Thanks to Brownfields tax credits offered by states like Massachusetts as well as the federal government (via the EPA), you can launch or participate in a Brownfields project and recognize significant return on your investment.
The Potential Payoff to Brownfields Participation
For qualifying projects in Massachusetts, both for-profit and not-for-profit entities can receive up to 50% of eligible clean-up costs back in state tax credits for achieving a Permanent Solution without conditions, or 25% for achieving a Permanent Solution with conditions. Moreover, they can sell those credits to third-party investors who are attracted to the instant tax savings as well as the opportunity to invest in a positive venture that spurs economic development and reduces blight.
At the same time, the federal government offers additional tax credits which may be taken in conjunction with the state tax credits. The two most common are the Historic Tax Credit (HTC) and the Federal Investment Tax Credit (ITC). The HTC provides up to an additional 20 percent credit when a property qualifies as an historic site, while the ITC credits back up to 30% of the costs when renewable energy equipment is placed in service as part of the improvement.
Who Is Eligible to Receive the Brownfields Tax Credits
Staying with the example from the Commonwealth of Massachusetts, you can quickly determine if your organization would qualify to receive the Brownfields tax credits, as the state is very clear in its description of who is eligible.
You are eligible to receive the state credit if your property meets all three of the following conditions:
- You own or lease the property for business purposes
- You have reasonable grounds to suspect environmental contamination at the site and have reported that to the Massachusetts Department of Environmental Protection
- Your property is located in an EDA or an Economic Target Area
How to Make Sure Your Credit is Guaranteed
You cannot just hire cleanup crews or purchase equipment and perform the work, then expect to receive the credit. You have to ensure you plan your project in a manner that keeps you in qualifying status for the credit. Following are the six most critical determinants for qualification:
- You must use a Massachusetts Licensed Site Professional, or LSP.
- The person or organization performing the investigation and/or remediation cannot have caused or contributed to the suspected contamination.
- The cost of your environmental clean-up must exceed 15% of the property’s assessed value at the time prior to a response action or before remediation.
- Your organization must begin the environmental response action on or before August 5, 2018 (Yes, time to get moving!).
- You must incur all relevant response and remediation costs prior to January 1, 2019.
Selling Your Brownfields Tax Credits as a Safe Investment
Since Brownfields tax credits can be transferred or sold, any organization or taxpayer can benefit from the credits. In fact, many recipients of Brownfields tax credits have great incentive to sell their credits. For example, those located outside of Massachusetts and do not have a Massachusetts tax obligation can use their credits as a source of extra income. Additionally, rather than waiting for the complete five-year payback period, recipients can monetize the credits faster and put that cash to use in other ways.
Why Third Parties Want to Buy Your Brownfields Tax Credits
Many organizations, particularly financial institutions, have large tax obligations to both states like Massachusetts and the federal government. Since they would buy your tax credits at a discount to full value, they gain a way to easily reduce their tax burden which also provides additional upside potential. They may also realize additional upside to their investment by buying into the cleanup project as an investor. In this way, they also stand to gain long-term business benefit by contributing to your efforts.
There are fewer prime locations to develop or improve property, and Brownfields tax credits provide a way to develop attractive properties in urban areas – with great ROI potential. At the same time, all participants and investors in Brownfields projects receive the added bonus of having contributed to the improvement of urban areas and helping promote attractive economic expansion.
ATC Group Services, LLC revitalizes Brownfields sites and restores them to thriving community spaces. From infrastructure and environmental improvement to job creation and economic growth, our team restores new life to any site – from start to finish. Contact us if we can be of assistance.