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H.R. 6756 (115th): American Innovation Act of 2018

H.R. 6756 intends to make it easier and less costly for an entrepreneur to start a new business by providing for more deductions of start-up and organizational costs in the business’s first year and preserving start-up losses and start-up credits by exempting them from the limitations on use that otherwise could apply after an ownership change.

Specifically, the legislation consolidates the rules for start-up expenditures (section 195) and organizational expenditures (sections 248 and 709(b)) into a single provision, allowing the taxpayer to elect to deduct up to $20,000 of the aggregate amount of start-up and organizational expenditures in the taxable year that the business begins. This deduction is phased out to the extent that the start-up and organizational expenditures exceed $120,000.[1] Expenditures above the increased limit would continue to be deductible over a 180-month period.

In addition, the legislation amends sections 382 and 383 to permit a corporation’s net operating loss carryforwards, net operating losses, general business credit carryforwards, and general business credits that arise during the start-up period of a business to be available for use in a post-ownership change year without limitation by sections 382(a) and 383.

With regard to section 382, the proposal generally reduces a corporation’s losses that are subject to limitation by the portion of the corporation’s net operating loss carryforwards and net operating losses that are attributable to the early years of the start-up business. With regard to section 383 the bill permits unused general business credits earned by a start-up business prior to an ownership change to be used in a post-change year without limitation.

Last updated Sep 25, 2018. Source: Republican Policy Committee

The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Sep 10, 2018.

American Innovation Act of 2018

This bill consolidates and expands the existing tax deductions for start-up expenditures and organizational expenditures of taxpayers beginning an active trade or business.

For the year in which an active trade or business begins, the bill allows a single deduction equal to the lesser of (1) the aggregate amount of start-up and organizational expenditures paid or incurred in connection with the active trade or business, or (2) $20,000, reduced (but not below zero) by the amount by which the aggregate amount exceeds $120,000. The $20,000 and $120,000 limits must be adjusted for inflation after 2019.

The bill also allows a start-up business to use net operating loss carryforwards, net operating losses, and unused general business tax credits after an ownership change without being subject to certain limitations required under current law.