Freight RAILCAR Act of 2025
The Freight RAILCAR Act of 2025 would create a new temporary federal tax credit to encourage the replacement or modernization of inefficient freight railcars. The core idea is to spur capital investment in newer, higher-capacity or higher-performance railcars by providing a 10% leveraged credit on eligible modernization expenses, with a cap of 1,000 qualified railcars per taxpayer per year. To qualify, railcars must be newly built replacements or modernizations that meet defined performance/capacity standards and be produced in a “qualified facility.” There are several safeguards (no double benefits, basis reduction, sale-leaseback and syndication rules, and eligibility limits for state-owned entities) and a three-year sunset for the program. The measure also requires a Treasury report within three years detailing usage, scrapping, and new railcar activity. The bill would amend the Internal Revenue Code to add Sec. 45BB (the Freight Railcar Modernization Credit) and designate it as a business credit (included in the general business credit). It becomes effective for property placed in service and expenditures paid after December 31, 2024, and would terminate for qualifying expenditures after three years from enactment. A panel report to Congress is also mandated within three years of enactment.
Key Points
- 1Credit and cap
- 2- A new 10% credit (under Sec. 45BB) against freight railcar fleet modernization expenses, treated as a business credit.
- 3- The credit is limited to no more than 1,000 qualified freight railcars per taxpayer per tax year.
- 4Eligible expenditures and railcar definitions
- 5- “Freight railcar fleet modernization expenses” equal the sum of the basis of qualified newly built replacement railcars plus modernization expenditures.
- 6- “Qualified railcar modernization expenditure” is amounts paid/incurred for modernizing a railcar and charged to its capital account.
- 7- “Qualified newly built replacement railcar” must be built after enactment, placed in service within 3 years, and replace two railcars scrapped (and removed from the AAR Umler master file) within the preceding 48 months.
- 8Significant improvement criteria
- 9- A “qualified freight railcar” must be acquired or modernized after enactment, meet a “significant improvement” standard, be built in a “qualified facility,” and not have claimed the credit previously.
- 10- “Significant improvement” means either an 8% or greater increase in capacity, or a performance improvement meeting specific standards (AAR S-286 or HM-251/HM-251C, as amended).
- 11Qualified facility and anti-abuse rules
- 12- A “qualified facility” is one not owned or leased by a party ineligible for certain federal rail contracts (per 49 U.S.C. 5323(u)).
- 13- Denial of double benefits: the credit cannot duplicate other deductions or credits.
- 14- Basis adjustment: the railcar’s tax basis must be reduced by the credit amount.
- 15- Sale-leaseback and syndication rules: treat certain leaseback or sale arrangements as if placed in service at later dates to limit credit timing abuse.
- 16- Ineligibility for state-owned enterprises: entities owned or controlled by state-owned enterprises cannot claim the credit.
- 17Termination and effective date
- 18- The credit for qualifying replacement and modernization expenditures terminates after three years from the enactment date.
- 19- Effective for property placed in service and expenditures paid after December 31, 2024.
- 20Reporting requirement
- 21- Not later than three years after enactment, Treasury must report to Congress on credit activity, including the number of times claimed, railcars scrapped, contracts entered, and new railcars built.