This bill adds a new investment tax credit aimed at encouraging private hazard‑mitigation work on property that supports water‑dependent commerce. It defines qualifying projects by reference to model building codes and a set of specified mitigation activities, and it targets businesses that operate working waterfronts.
The law directs Treasury to craft implementing guidance in consultation with FEMA and includes special treatment for U.S. possessions. The measure is designed to move private capital into resiliency upgrades that protect fisheries, marinas, boatbuilders, aquaculture operations, and other water‑dependent enterprises.
At a Glance
What It Does
The bill creates a new credit calculated as a percentage of eligible capital investment in qualifying mitigation projects and folds that credit into the existing investment credit framework. It sets per‑taxpayer limits, a repeat‑use restriction, and rules to prevent overlap with existing rehabilitation credits, and it requires Treasury to issue regulations in consultation with FEMA.
Who It Affects
Owners of working waterfront real property and the small, water‑dependent businesses that operate on them (fisheries, marinas, aquaculture, boatbuilders), plus contractors who perform mitigation work, tax advisers preparing credits, state/territorial finance officers handling possession payments, and federal administrators coordinating guidance with FEMA.
Why It Matters
This is an explicit federal subsidy to private resilience on water‑dependent properties — a lever that could change owners’ investment calculus, influence insurance risk pools, and channel federal support into place‑based coastal and riverine adaptation rather than solely into grants or FEMA programs.
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What This Bill Actually Does
The bill inserts a new section into the Internal Revenue Code that treats a defined set of capital expenditures on working waterfront property as qualifying investment for a federal investment tax credit. Qualified investment is the depreciable basis of tangible property placed in service as part of a qualifying mitigation project; those investments are claimed under the investment credit rules so taxpayers reduce tax liability rather than receive a grant.
Not every waterfront improvement qualifies. The statute limits eligible projects to measures designed to prevent or reduce damage from natural hazards and it enumerates categories of work — elevation, flood‑risk reduction (stormwater systems, diversion, storage), shoreline stabilization (riprap, vegetation, slope work), floodproofing, retrofitting for extreme wind/temperature, and warning systems — while giving Treasury authority to add methods.
Projects must be substantially designed to the applicable International Code Council model code: the 2021 code for projects placed in service before a specified date and the most recently affirmed model code thereafter.The credit is subject to a per‑taxpayer dollar cap, aggregation rules that treat related employers as a single taxpayer for the cap, and a timing restriction that bars a taxpayer from claiming the credit more than once within a 10‑year window (with limited exceptions for progress expenditures). The bill also prevents duplication with the federal rehabilitation credit by excluding qualified rehabilitation expenditures from the base of qualifying investment.To implement the program, the Secretary of the Treasury must issue regulations and is instructed to consult FEMA.
The bill also handles treatment of U.S. possessions through payments to those jurisdictions, with different approaches for mirror‑code possessions and non‑mirror jurisdictions, and specifies an effective date for taxable periods beginning after December 31, 2025.
The Five Things You Need to Know
The bill makes qualifying mitigation capital eligible for an investment credit equal to 30 percent of the qualified investment.
A per‑taxpayer dollar cap limits the credit — the statute sets a $300,000 maximum per taxpayer and indexes that cap for inflation beginning after 2026; related employers are aggregated for the cap.
Taxpayers may not receive the credit for a taxable year if they received the credit (excluding certain progress expenditures) within the prior 10 taxable years.
Qualifying projects must be substantially designed to an ICC model building code (the 2021 code until a statutory transition date) and fall into enumerated mitigation categories such as elevation, flood‑risk reduction, shoreline stabilization, floodproofing, retrofitting, and warning systems.
To qualify as ‘working waterfront property,’ the real property must support an active water‑dependent trade or business whose average annual gross receipts for the prior three taxable years do not exceed $47,000,000 (with aggregation rules and inflation adjustment).
Section-by-Section Breakdown
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Basics of the credit (percentage treatment)
This subsection establishes the credit as a percentage of qualified investment and ties the new provision into the investment credit architecture (section 46). Practically, that means businesses claim the amount against income tax liability as an investment tax credit rather than as a refundable payment, and normal investment‑credit interaction rules will apply when taxpayers calculate their liability.
Per‑taxpayer cap, aggregation, indexing, and time restriction
This provision imposes a maximum dollar amount per taxpayer, applies aggregation rules so commonly owned or related employers are treated as one taxpayer for the cap, and directs inflation indexing after a specified date. It also contains a 10‑year lookback that prevents repeated full credit claims by the same taxpayer within that window, although the statute carves out qualified progress expenditures in a typical construction‑stage manner.
Qualified investment and eligible property rules
Qualified investment is defined as the depreciable basis of eligible, tangible property placed in service as part of a qualifying project; the bill imports familiar depreciation/amortization language used for other investment credits. It explicitly disallows counting amounts already treated as qualified rehabilitation expenditures under section 47, which aims to block double‑dipping for building rehabilitation projects that might otherwise qualify under multiple credits.
Definition of qualifying projects and working waterfront property
This subsection defines the scope of allowable activities and what constitutes a working waterfront. Projects must substantially comply with a specified ICC model code (with a transition to the latest affirmed model code after a set date) and must perform one or more enumerated mitigation functions — elevation, floodwater management, shoreline stabilization, floodproofing, retrofitting, or warning systems. The working waterfront test links tax eligibility to water‑dependent commercial activity and includes a gross‑receipts cutoff with aggregation rules.
Implementation authority, possessions treatment, and when the credit applies
The bill directs Treasury to issue implementing regulations in consultation with FEMA, signaling an expectation of operational coordination rather than unilateral IRS rulemaking. It sets out payment mechanisms for U.S. possessions (mirror‑code jurisdictions receive payments based on losses; non‑mirror jurisdictions receive estimated benefits conditional on a distribution plan). The effective date applies to taxable periods after December 31, 2025, under rules patterned on earlier investment credit transitions.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Small, water‑dependent businesses (commercial fisheries, marinas, aquaculture operators, small boatbuilders): The credit lowers the after‑tax cost of investing in structural and nonstructural hazard mitigation, making otherwise marginal resilience projects more financially feasible.
- Owners of working waterfront real estate that lease to water‑dependent businesses: Property owners who invest in shoreline stabilization, elevation, or floodproofing can count eligible basis toward the credit, improving property resilience and potentially preserving rental income streams.
- Local ports and economic development districts: By encouraging private investment in resilient infrastructure on commercial waterfronts, the credit can preserve local economic activity and reduce demand for public emergency response and recovery dollars.
Who Bears the Cost
- Federal Treasury and taxpayers broadly: The new credit reduces federal revenue and creates an explicit subsidy for private property improvements; the cost will be borne by federal budget resources absent offsetting revenue measures.
- Tax administrators and FEMA: Treasury (and IRS) will need to develop eligibility verification and coordination processes with FEMA, increasing administrative workload; FEMA must engage in technical review and possibly shape standards without a dedicated funding stream for that partnership.
- Contractors and design professionals on small waterfront projects: To meet code and documentation requirements and to secure the credit, contractors and engineers may face higher upfront compliance and certification costs that can be especially onerous on small firms.
Key Issues
The Core Tension
The central dilemma is whether to allocate scarce federal subsidy to preserve private, revenue‑generating waterfront enterprises — protecting local economies and jobs — at the cost of subsidizing private property owners and adding complexity to tax administration; the bill must choose between narrowly prescriptive rules that reduce abuse and broader, flexible standards that better reflect varied local risks but invite inconsistent application.
The bill targets a narrow slice of private waterfront activity through a tax incentive, but it leaves multiple implementation questions unresolved. The statute delegates significant discretion to the Secretary to prescribe acceptable mitigation methods and to affirm applicable model codes; absent detailed regulatory criteria there is a risk of uneven interpretation across regions.
The exclusion of qualified rehabilitation expenditures is intended to prevent double‑counting, but practical overlap between retrofit/rehab work and mitigation improvements will create compliance complexity for tax filers and examiners.
The per‑taxpayer cap and the 10‑year reuse restriction limit federal exposure but also constrain the credit’s ability to finance larger, multi‑phase projects that characterize many shoreline or harbor adaptations. The gross‑receipts ceiling focuses benefits on smaller operations, but the aggregation rules and the definition of ‘used for or supports’ commercial activities will generate boundary disputes — for example, distinguishing mixed‑use properties, ancillary tourist activities, or larger vertically integrated seafood companies.
Finally, the possessions payment rules introduce additional fiscal and logistical complexity: estimating ‘loss’ or ‘aggregate benefits’ for territories and ensuring prompt distribution depends on intergovernmental agreements and capacity that may be uneven.
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