Railroad Track Maintenance Tax Credit
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The Railroad Track Maintenance Tax Credit, also known as the 45G Tax Credit due to its tax line item reference in the Internal Revenue Code of 1986, Title 26, is a federal income tax credit for track maintenance conducted by short lines and regional railroads in the United States. The credit grants an amount equal to 50 percent of qualified track maintenance expenditures and other qualifying railroad infrastructure projects. It was first inserted into the tax code by the American Jobs Creation Act of 2004, and went into effect on January 1, 2005 with an expiration date of December 31, 2009. The credit was extended seven times until it was made permanent by the Consolidated Appropriations Act of 2021, but new legislation was introduced on January 16, 2025 to modify the credit, increasing the per-mile reimbursement cap, making the credit eligible for inflation adjustment and expanding the amount of track eligible for reimbursement.
In the United States, short line and regional railroads grew exponentially following railroad deregulation in 1980. As of 2016 there were an estimated 603 Class II and III railroads serving small and mid-sized towns that otherwise would have lost rail service. Maintenance costs for rail infrastructure are often expensive and difficult for small railroads to cover in part due to the nature of the origins of short line railroads. Many small railroads suffer from decades of deferred maintenance by previous owners, and as a result most of these companies invest a minimum of 25% of their annual revenue in infrastructure improvements.[1]
In order to assist railroads with maintaining their infrastructure, the Railroad Track Maintenance Tax Credit was created. Highway and road infrastructure is maintained by federal and state governments, whereas freight rail infrastructure is maintained by private sector investments. Since its inception, the tax credit has driven over $8 billion in private investment in rail rehabilitation. Data from the Federal Railroad Administration shows that train derailments on short line railroads have declined by 50 percent in the years since the credit was introduced, demonstrating the connection between infrastructure investments and improved safety.[2]
American Jobs Creation Act of 2004
The tax credit originated with the American Jobs Creation Act of 2004. The credit was capped at $3,500 per mile of track, with eligibility for Class II and Class III railroads, any shippers who transport property using a Class II or Class III railroad, and companies that perform maintenance on or provide material to qualified railroads.[3] With the passing of the act in October 2004, the effective date for the credit was December 31, 2004, with a scheduled expiration date of January 1, 2008, a period of three years.