Environmental Cleanup Costs(p23)

Environmental cleanup costs are generally capital expenditures. However, you can elect to deduct these costs as a current business expense if certain requirements (discussed later) are met. This special tax treatment is generally available for environmental cleanup costs you pay or incur before January 1, 2012.

Environmental cleanup costs are generally costs you pay or incur to abate or control hazardous substances at a qualified contaminated site. Qualifying environmental cleanup costs must be paid or incurred before January 1, 2012

You elect to deduct environmental cleanup costs paid or incurred before January 1, 2012, by taking the deduction on the income tax return (filed by the due date including extensions) for the tax year in which the costs are paid or incurred.

Deduct environmental cleanup costs on the "Other Expenses" or "Other Deduction "line of the appropriate income tax return. If the schedule requires you to separately identify each expense included write "Section 198 Election" on the line next to the environmental cleanup costs.

If, for any tax year, you pay or incur more than one environmental cleanup cost, you can elect to deduct one or more of such expenditures for that year. You can elect to deduct one expenditure and elect to capitalize another expenditure (whether or not they are of the same type or paid or incurred with respect to the same qualified contaminated site). An election to deduct an expenditure for one year has no effect on other years. You must make a separate election for each year in which you intend to deduct environmental cleanup costs.

This deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis if you had not elected to deduct the expenditure. For more information on recapturing the deduction, see Depreciation Recapture in Publication 544.

For more information about the environmental cleanup cost deduction, see Internal Revenue Code section 198.