Just when it looks like the regulatory world has done its best to curtail big ticket leasing, along comes something that might breathe a bit of fresh air into the market. Not that it was intentional, of course, but the Freight Rail Infrastructure Capacity Expansion Act, introduced by Senators Trent Lott and Kent Conrad, may do just that. If passed, the Act will provide a 25% tax credit for businesses investing in new rail track, intermodal facilities, rail yards, certain locomotives, or other rail infrastructure expansion projects. Railroads, ports, shippers, trucking companies, and other transportation-related businesses would be eligible for the credit. The level playing field endorsed by the ELA and upheld in past legislation, is sustained in this Act, ensuring that lessors also will be eligible for the credit.
New qualified freight rail infrastructure property includes, inter alia, terminals, yards, roadway buildings, fuel stations, railroad signal, communication, or other operating systems, including components that must be installed on locomotives or other rolling stock, or intermodal transfer or transload facilities or terminals, including fixtures and equipment used therein. It does not include rolling stock or locomotives unless the locomotive increases overall taxpayer horsepower.
As I mentioned, there is language specifically addressing leasing, including a 90-day window so the lessor can take the credit on sale-leasebacks. Furthermore, any determinations as to increasing capacity or adding infrastructure are made through the eyes of the lessee, not the lessor. For example, under the special rules for leasing of locomotives, the increasing total horsepower requirement is determined with respect to all locomotives owned by, or leased to, the lessee. The lessor’s ownership of any of these assets is not considered in determining the availability of the credit.
Of course, as in past law, the basis of any tax credit property must be reduced by the amount of the credit taken. The good news is that the depreciation on the remaining property is not subject to AMT, the credit can be used for AMT purposes, and the Section 179 expensing is still allowed. The credit will be available on qualified assets placed into service after December 31, 2006. I smell opportunity for rail, trucking, and intermodal lessors!
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