Q: Is the sale of a Massachusetts Brownfields Tax Credit taxable?
A: Like it or not, the answer is almost surely “Yes”, the credits are taxable.
A recent US Court of Appeals case regarding whether a recipient of New York State Brownfield credits had to pay tax on the credits again shines a light on this issue – in our experience, the question of if your tax credit will be taxed is one of the most common questions we field.
In Massachusetts, the Brownfield tax credits became transferable in 2006, and a secondary market has developed where credit recipients can sell excess credits at a discount to face value to generate cash. At that time, requests to the Internal Revenue Service (IRS) and Massachusetts Department of Revenue (DOR) regarding the tax status of these sales went unresolved.
Finally, in 2011, the IRS issued a memorandum clarifying the tax treatment of Massachusetts Brownfields Tax Credits as well as other transferable state credits: the credits are considered a capital asset and the sale of these tax credits is a taxable event generating a capital gain.
To read more about the topic of whether Brownfield credits are taxable, see our extensive blog post about the subject
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