IRS Rules that Homeowners Won’t Have to Pay Additional Taxes for Subsidized Replacement of Lead Pipes

Milwaukee, WI –  The Internal Revenue Service issued a formal ruling this week that property owners will not be asked to count the subsidies they receive for replacing lead pipes as income when filing federal income taxes, or need to file amended tax returns if their lead service line was already replaced. Milwaukee Water Works has never notified customers that they may be expected to report their subsidy as income, but the absence of clarity on the issue at the federal level caused confusion for some property owners.

Milwaukee Water Works praised the ruling and the National League of Cities for their advocacy

“With this ruling from the IRS, homeowners can be confident that the benefits of any subsidized replacement of their lead service line will not incur any tax liabilities,” said Water Works Superintendent Patrick Pauly. “We’re pleased that the IRS has brought long-sought clarity to this issue and commend the National League of Cities for their advocacy on behalf of property owners.”

Milwaukee Water Works recently announced that the vast majority of lead service line replacements will be fully subsidized. Previously, the City of Milwaukee and Milwaukee Water Works paid about 80% of the cost for each replacement.

More than 6,500 property owners in Milwaukee have benefited from a city subsidy in the past seven years. As Milwaukee Water Works begins to scale up the lead service line replacement work, thousands more homeowners will benefit from subsidies each year.

The additional taxes could have amounted to $1,000 per household, according to the National League of Cities. With municipalities prioritizing replacements among low-income and other disadvantaged groups, many of the property owners who will receive or have received financial assistance to replace lead service lines are not in a position to pay additional taxes.

On Tuesday, Michael Gleeson and Carolyn Berndt of the National League of Cities federal advocacy team met with the IRS Chief Counsel’s Office to argue that lead service line replacement should be excluded from income.

In Announcement 2024-10, issued Tuesday, the IRS agreed, stating in part, “The replacement of lead service lines…does not result in income to the residential property owners under § 61 of the Internal Revenue Code.”

NOTE: This press release was submitted to Urban Milwaukee and was not written by an Urban Milwaukee writer. It has not been verified for its accuracy or completeness.