Working Waterfront Disaster Mitigation Tax Credit Act
- Bill Number
- S. 2538
- Origin Chamber
- Senate
- Congress
- 119th Congress, Session 1
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2025-07-30: Read twice and referred to the Committee on Finance.
- Last Updated
- 2025-12-05T22:48:30Z
AI-Generated Summary
Purpose
The legislation, titled the "Working Waterfront Disaster Mitigation Tax Credit Act," aims to encourage investments in projects that protect "working waterfront" properties—areas used for water-dependent commercial activities—from natural disasters like flooding and erosion. It does this by introducing a new tax credit to offset costs, promoting resilience in coastal and waterfront economies.
Key Provisions
- Tax Credit Amount and Eligibility: Provides a credit equal to 30% of the "qualified investment" (the cost basis of eligible property, such as new or taxpayer-built tangible assets that can be depreciated) placed in service during the tax year as part of a qualifying project.
- Limitations:
- Maximum credit per taxpayer: $300,000 (adjusted for inflation starting in 2027, rounded to the nearest $10,000).
- Related businesses (treated as a single employer under existing tax rules) are aggregated for the cap.
- No credit available if a similar credit was claimed in the prior 10 years (except for certain progress payments during construction).
- Qualifying Projects: Must be designed to prevent or reduce damage from natural hazards and comply with International Building Code standards (2021 version for projects before 2032; updated codes thereafter, as approved by the Treasury Secretary). Eligible methods include:
- Structural elevation (e.g., raising buildings on foundations or fill).
- Flood risk reduction (e.g., stormwater management, flood barriers, vegetation for shoreline stability).
- Shoreline stabilization (e.g., erosion control with riprap or vegetation buffers).
- Floodproofing (e.g., impermeable walls or flood-resistant materials).
- Retrofitting existing structures for hazards like high winds or extreme temperatures.
- Warning systems (e.g., flood alarms or enhanced emergency alerts).
- Working Waterfront Property Definition: Real property in the U.S. or its possessions used for active water-dependent trades or businesses (e.g., commercial fishing, boating, aquaculture, dredging) that meet a "gross receipts test" (average annual receipts ≤ $47 million over the prior three years, adjusted for inflation after 2026; aggregated for related businesses).
- Coordination and Rules: Excludes costs eligible for other tax credits (like rehabilitation credits). Progress expenditure rules apply during construction. The Treasury Secretary, in consultation with the Federal Emergency Management Agency (FEMA), will issue regulations.
- Application to U.S. Possessions: Provides payments to territories with "mirror code" tax systems (which mimic federal taxes) to offset revenue losses, and estimated benefits to others if they have an approved distribution plan.
- Effective Date: Applies to periods after December 31, 2025, for tax years ending after that date.
Significant Changes to Existing Law
- Adds a new Section 48F to the Internal Revenue Code (under investment tax credits), integrating it with existing credits like clean energy incentives.
- Updates related sections (e.g., Section 46 for overall investment credits, Section 49 for at-risk rules, and Section 50 for basis adjustments) to include this credit, ensuring it interacts properly with depreciation and other tax benefits.
- Introduces inflation adjustments tied to cost-of-living changes (using 2025 as the base year) and specific aggregation rules for small businesses, which build on but expand existing small business thresholds in the tax code.
Potential Impacts
- On Government Agencies: Increases administrative workload for the IRS and Treasury to verify eligibility, issue regulations, and handle inflation adjustments; may involve coordination with FEMA for hazard mitigation guidance. Could reduce federal tax revenue due to credits claimed.
- On Citizens and Businesses: Encourages small waterfront businesses to invest in disaster-proofing, potentially lowering future repair costs from events like hurricanes or floods. Benefits coastal communities by supporting jobs in fishing and related industries, but the credit cap limits aid to larger operations.
- On International Relations: Minimal direct impact, though it indirectly supports U.S. coastal resilience, which could affect trade in seafood or maritime activities with other countries.
Main Stakeholders Affected
- Primary Beneficiaries: Owners and operators of small to medium-sized working waterfront businesses (e.g., commercial fishers, boat builders, aquaculture farms) with gross receipts under the threshold, particularly in vulnerable coastal or riverine areas.
- Government Entities: IRS (tax administration), Treasury Department (regulations and payments to possessions), and FEMA (consultation on hazard standards).
- Indirectly Affected: Coastal residents and communities relying on waterfront economies; environmental groups interested in shoreline protection; U.S. possessions like Puerto Rico or Guam for territorial tax adjustments.
Notable Legal, Constitutional, or Political Implications
- Legal: Strengthens tax incentives for environmental resilience without overriding state building codes, but relies on Treasury/FEMA guidance for enforcement, which could lead to disputes over "qualifying" projects. Coordinates with existing federal disaster laws (e.g., FEMA programs) to avoid duplication.
- Constitutional: No apparent challenges; uses Congress's taxing and spending powers under Article I to promote general welfare via disaster mitigation.
- Political: Supports bipartisan priorities like economic aid for rural/coastal areas and climate adaptation, potentially appealing to senators from waterfront states (e.g., introduced by Sens. King and Cassidy). May face debate over revenue costs or favoritism toward specific industries, but includes safeguards like caps and receipts tests to target aid.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Sen. King, Angus S., Jr. [I-ME]
Cosponsors (1)
Recent Actions
- 2025-07-30: Read twice and referred to the Committee on Finance.
- 2025-07-30: Introduced in Senate
Bill Versions
- Working Waterfront Disaster Mitigation Tax Credit Act — issued 2025-07-30 — PDF (12 pages)