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Tax credits available for short-line rail improvements

WASHINGTON – Recent federal legislation could improve the outlook for engineering firms serving the railroad market sector. In October, Congress passed H.R. 4520, the American Jobs Creation Act of 2004, which included significant tax credits for short-line railroads that invest in their rail infrastructure.

Class II and Class III railroads can earn federal tax credits by making qualified railroad track maintenance investments,” including expenditures for roadbed, bridges, and related track structures, according to the American Short Line and Regional Railroad Association (ASLRRA). Class II railroads are those with annual operating revenues between $20 million and $250 million; Class III railroads have annual operating revenues of less than $20 million.

The Class II and III railroads can earn 50 cents in tax credits for every dollar spent on qualified investments up to a maximum, total credit equal to the number of miles of railroad track owned or leased by the railroad multiplied by $3,500. For example, a shortline railroad that owns or leases 100 miles of track can earn a tax credit of as much as $350,000. Tax credits may be earned on investments after Dec. 31, 2004, but before Jan. 1, 2008, and unused credits can be carried forward to future tax years, the ASLRRA explained.