If your company faces the need to “remediate” or clean up environmental contamination, the money you spend can be deductible on your tax return as ordinary and necessary business expenses. Of course, you want to claim the maximum immediate income tax benefits possible for the expenses you incur.
These expenses may include the actual cleanup costs, as well as expenses for environmental studies, surveys and investigations, fees for consulting and environmental engineering, legal and professional fees, environmental “audit” and monitoring costs, and other expenses.
Current deductions vs. capitalized costs
Unfortunately, every type of environmental cleanup expense cannot be currently deducted. Some cleanup costs must be capitalized. But, generally, cleanup costs are currently deductible to the extent they cover:
- “Incidental repairs” (for example, encapsulating exposed asbestos insulation); or
- Cleaning up contamination that your business caused on your own property (for example, removing soil contaminated by dumping wastes from your own manufacturing processes, and replacing it with clean soil) — if you acquired that property in an uncontaminated state.
On the other hand, remediation costs generally have to be capitalized if the remediation:
- Adds significantly to the value of the cleaned-up property,
- Prolongs the useful life of the property,
- Adapts the property […]