Freight RAILCAR Act of 2025

Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

For purposes of section 38, the freight railcar modernization credit determined under this section for the taxable year is an amount equal to 10 percent of the taxpayer’s freight railcar fleet modernization expenses.

No more than 1,000 qualified freight railcars per taxpayer may be taken into account for purposes of determining the credit under subsection (a) with respect to a taxable year.

For purposes of this section—

The term freight railcar fleet modernization expenses means the sum of the qualifying railcar replacement and modernization amount.

The term qualifying railcar replacement and modernization amount means—

(A) the basis of any qualified newly built replacement railcar placed in service by the taxpayer during the taxable year, plus

(B) the qualified railcar modernization expenditures of the taxpayer for the taxable year.

The term qualified newly built replacement railcar means a qualified freight railcar which—

(A) is built after the date of the enactment of this section,

(B) is ordered or originally placed in service before the date that is three years after the date of the enactment of this section, and

(C) replaces two freight railcars owned by the taxpayer that—

(i) were in service within the 48 months preceding the beginning of the taxable year, and

(ii) which were both scrapped and permanently removed from the AAR Umler System master file during such taxable year.

The term qualified freight railcar means a freight railcar that—

(i) is either acquired or modernized by the taxpayer after the date of the enactment of this section,

(ii) meets the significant improvement requirements for capacity, fuel efficiency, or performance of subparagraph (B),

(iii) was built in a qualified facility, and

(iv) with respect to which no credit under this section was previously claimed by any taxpayer.

For purposes of this paragraph, an improvement in capacity or fuel efficiency and performance with respect to a modernized freight railcar is a significant improvement if—

(i) such capacity or fuel efficiency, as the case may be, is increased by at least 8 percent, or

(ii) in the case of performance, the qualified freight railcar meets the requirements of the Association of American Railroads Standard S–286 or is modernized to meet the design standards set forth in final rule HM–251 of the Pipeline and Hazardous Materials Safety Administration (as amended by HM–251C).

The term modernized means modified, retrofitted, converted or rebuilt for the purpose of meeting the significant improvement criteria of subparagraph (B).

The term qualified railcar modernization expenditure means any amount paid or incurred—

(A) in connection with the modernization of a freight railcar resulting in such railcar being designated a qualified freight railcar, and

(B) which is properly chargeable to a capital account with respect to such freight railcar.

The term qualified facility means a facility that is not owned or leased by an entity that would be ineligible for an award of a contract or subcontract under 49 U.S.C. 5323(u).

No credit shall be allowed under subsection (a) for any expense for which a deduction or credit is allowed under any other provision of this chapter.

For purposes of this subtitle, if a credit is allowed under subsection (a) with respect to any qualified freight railcar, the basis of such railcar shall be reduced by the amount of the credit so allowed.

For purposes of subsection (a), if any qualified freight railcar is—

(A) originally placed in service by a person after the date of the enactment of this section, and

(B) sold and leased back by such person within 3 months after such railcar is originally placed in service (or, in the case of more than one railcar subject to the same lease, within 3 months after the date the final railcar is placed in service, so long as the period between the time the first railcar is placed in service and the time the last railcar is placed in service does not exceed 24 months), such railcar shall be treated as originally placed in service not earlier than the date on which such railcar is used under the leaseback referred to in this paragraph.

For purposes of subsection (a), if—

(A) any qualified freight railcar is originally placed in service after the date of enactment of this section by the lessor of such railcar,

(B) such railcar is sold by such lessor or any subsequent purchaser within 3 months after the date such railcar was originally placed in service (or, in the case of more than one railcar subject to the same lease, within 3 months after the date the final railcar is placed in service and the time the last railcar is placed in service does not exceed 12 months), and

(C) the user of such railcar after the last sale during such 3-month period remains the same as when such railcar was originally placed in service, such railcars shall be treated as originally placed in service not earlier than the date of such last sale.

No credit under subsection (a) shall be allowed to any taxpayer that would be ineligible for an award of a contract or subcontract under 49 U.S.C. 5323(u).

This section shall not apply to any qualifying railcar replacement and modernization amount after the date that is three years after the date of the enactment of this section.

Section 38(b) of the Internal Revenue Code of 1986 (relating to current year business credit) is amended by striking plus at the end of paragraph (40), by striking the period at the end of paragraph (41) and inserting, plus and by inserting at the end thereof the following new paragraph:

(42) the freight railcar modernization credit determined under section 45BB.

Section 38(c)(4)(B) of the Internal Revenue Code of 1986 is amended by redesignating clauses (x), (xi), and (xii) as clauses (xi), (xii), and (xiii), respectively, and by inserting after clause (ix) the following new clause:

(x) the freight railcar modernization credit determined under section 45BB,

The table of sections for subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 45AA the following new item:

The amendments made by this section shall apply to property placed in service, and amounts paid or incurred, after December 31, 2024.

Not later than 3 years after the date of the enactment of this Act, the Secretary of the Treasury (or the Secretary’s delegate), shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report on activity with respect to the qualified freight railcar credit under section 45BB of the Internal Revenue Code of 1986.

The report submitted under subsection (a) shall contain information with respect to the following:

(1) The number of times the credit was claimed.

(2) The number of railcars scrapped as a result of the credit.

(3) The number of new railcars entered into contract as a result of the credit.

(4) The number of new railcars built as a result of the credit.