The R&D Tax Credit, codified in Section 41, provides a dollar-for-dollar reduction in federal tax liability for companies that engage in qualified research activities. Originally enacted in 1981 and made permanent by the PATH Act of 2015, this credit encourages businesses to develop or improve products, processes, software, or technologies within the United States.
The credit is available to a wide range of industries, including, but not limited to, the following:
To qualify, research activities must meet the IRS’s four-part test:
Eligible expenses include wages, supplies, contractor costs, and cloud hosting. Companies can calculate the credit by either using the Regular Credit Method or the Alternative Simplified Credit (ASC), and must claim the credit via IRS Form 6765. Startups may also apply the credit against payroll taxes if they have less than $5 million in gross receipts for the current tax year and no gross receipts for more than five years prior.
Section 179D offers a generous deduction for energy-efficient improvements to commercial and public buildings. Enacted initially under the Energy Policy Act of 2005, it was significantly expanded by the 2022 Inflation Reduction Act (IRA).
For projects placed in service in 2025, the deduction can reach up to $5.81 per square foot, up from the pre-IRA maximum of $1.80 per square foot. To qualify for the highest tier, projects must meet prevailing wage and apprenticeship requirements, including the following:
Projects that began construction before Jan. 29, 2023, are exempt from the labor requirements and may still qualify for the enhanced deduction.
Section 179D applies to building owners, including manufacturers, retailers, hotels, schools, and hospitals, as well as design professionals, such as architects, engineers, and contractors working on tax-exempt buildings (e.g., education, government or nonprofit).
Recent changes allow for recurring deductions: every three years for commercial buildings and every four years for government/nonprofit buildings, provided new qualifying improvements are made.
If you believe you may be eligible for a Section 179D deduction, you should act with some urgency as a sunset provision has been introduced. The One Big Beautiful Bill Act (OBBBA) that became law in July 2025 includes a provision that terminates Section 179D for any project whose construction begins after June 30, 2026. This hard deadline means firms must act quickly to ensure eligibility.
Sections 41 and 179D offer complementary benefits for companies focused on innovation and sustainability. Whether you are developing new technologies or designing energy-efficient buildings, these incentives can significantly reduce your tax burden.
But timing is critical. With Section 179D facing a sunset and R&D credits requiring detailed documentation, proactive planning is essential. Firms that act now can unlock substantial savings while contributing to a more innovative and sustainable future.
Alexis Martin is CEO of EPSA USA, a Philadelphia-based firm that specializes in credits and incentives. He can be reached at amartin@epsa.com.
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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.