2.100
2.100 Deferrals of Gross Income
Tax Expenditure Name
Tax Expenditure Number
FY2023
FY2024
FY2025
FY2026
FY2027
Deferrals of Gross Income
2.100
10.4
25.0
15.9
4.9
(26.7)
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Tax Item
Description
Origin
FY2027
2.101
Deferral of Tax on Certain Shipping Companies
Deferral of Tax on Certain Shipping Companies
Federal law provides for the creation of special funds ("merchant marine capital construction funds" or "CCFs") by taxpayers who own eligible vessels. Taxpayers can use CCFs to set aside funds for the acquisition, construction, modernization, and major repair of ships that are constructed or reconstructed in the U.S., registered in the U.S., and used in trade or fishing activity. A deduction is allowed under the Code for amounts properly deposited into a CCF. Tax on income earned on amounts in the fund is deferred. Amounts placed in the CCF must be used for an eligible purpose within 25 years of being contributed or they will be taxed. Massachusetts conforms to the federal tax treatment of the contributions by virtue of its conformity with the Code.
Amounts withdrawn from a CCF are characterized as either qualified withdrawals or nonqualified withdrawals. Qualified withdrawals are those made for the purpose of either the acquisition, construction, or repair of qualified vessels, or making principal payments on the mortgage of a qualified vessel. Qualified withdrawals are excluded from a taxpayer's taxable income. Instead, taxpayers must reduce the depreciable basis of the vessel by the amount of the qualified withdrawal. Nonqualified withdrawals, which are any withdrawals that are not qualified withdrawals, are taxable. Nonqualified withdrawals include amounts used to make principal payments on the mortgage of a vessel if the basis of that vessel has already been reduced to zero.
Amounts that remain in a CCF after the termination of the agreement with the U.S. Secretary of Commerce or the U.S. Department of Transportation (see the next paragraph) are taxable. In addition, any amount left in the account for more than 25 years after being contributed must be recaptured through the inclusion of twenty percent of such amount in income in each of the next five years.
The Department of Transportation's Maritime Administration (MARAD) and the Department of Commerce's National Oceanic and Atmospheric Administration (NOAA) are responsible for administering the CCF program, with MARAD handing commercial vessels, and NOAA handling those in the fishing industry.
The deferral of the tax is essentially an interest-free loan from the government.
Amounts withdrawn from a CCF are characterized as either qualified withdrawals or nonqualified withdrawals. Qualified withdrawals are those made for the purpose of either the acquisition, construction, or repair of qualified vessels, or making principal payments on the mortgage of a qualified vessel. Qualified withdrawals are excluded from a taxpayer's taxable income. Instead, taxpayers must reduce the depreciable basis of the vessel by the amount of the qualified withdrawal. Nonqualified withdrawals, which are any withdrawals that are not qualified withdrawals, are taxable. Nonqualified withdrawals include amounts used to make principal payments on the mortgage of a vessel if the basis of that vessel has already been reduced to zero.
Amounts that remain in a CCF after the termination of the agreement with the U.S. Secretary of Commerce or the U.S. Department of Transportation (see the next paragraph) are taxable. In addition, any amount left in the account for more than 25 years after being contributed must be recaptured through the inclusion of twenty percent of such amount in income in each of the next five years.
The Department of Transportation's Maritime Administration (MARAD) and the Department of Commerce's National Oceanic and Atmospheric Administration (NOAA) are responsible for administering the CCF program, with MARAD handing commercial vessels, and NOAA handling those in the fishing industry.
The deferral of the tax is essentially an interest-free loan from the government.
0.8
2.102
Deferral of Federal Gain Invested in Qualified Opportunity Zones
Deferral of Federal Gain Invested in Qualified Opportunity Zones
The TCJA added Code Subchapter Z, §§ 1400Z-1 and 1400Z-2, effective December 22, 2017. The OBBBA amended Subchapter Z, effective December 31, 2026. Under Subchapter Z, Taxpayers may elect to defer gain from a sale or exchange of property to an unrelated party by reinvesting that gain within 180 days of the sale or exchange in a "qualified opportunity fund." For tax years prior to 2027, the deferred gain must be included in income upon the earlier of (i) the tax year in which the taxpayer's investment in the qualified opportunity fund is sold or exchanged, and (ii) December 31, 2026. For the 2027 tax year and thereafter, the deferred gain must be included in income upon the earlier of (i) the tax year in which the taxpayer's investment in the qualified opportunity fund is sold or exchanged, and (ii) five years after the date of investment in the qualified opportunity fund was made. In either case, the amount of gain includable is the excess of: the amount of gain excluded or the fair market value of the investment in the qualified opportunity fund, whichever is less, over the taxpayer's basis in the investment. For tax years prior to 2027, if a qualified opportunity fund investment is held for at least five or seven years by the date of deferred gain inclusion, the taxpayer's basis in the investment is increased by 10% or 15%, respectively. For the 2027 tax year and thereafter, if a qualified opportunity fund investment is held for at least five years, the taxpayer's basis in the investment is increased by 10% (or 30% for rural investments). Qualified opportunity fund investments held for at least 10 years can be sold tax-free.
This tax expenditure is affected by OBBBA (One, Big, Beautiful Bill Act) which was signed into law on July 4, 2025. Please refer to Appendix A for more details.
This tax expenditure is affected by OBBBA (One, Big, Beautiful Bill Act) which was signed into law on July 4, 2025. Please refer to Appendix A for more details.
(27.5)
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