American Innovation Act of 2025

Immediate Deduction for Start-ups: Taxpayers can elect to deduct a specific amount of start-up and organizational expenditures in the year their active trade or business begins (Section 2(a)(1)(A)). This provides a direct financial benefit at the start of a business.

Inflation Protection: The $20,000 and $120,000 deduction thresholds are subject to inflation adjustments starting after December 31, 2026 (Section 2(a)(1)(A)(3)). This ensures the benefits maintain their value over time as the cost of living changes.

Flexibility During Business Closure: If a taxpayer completely liquidates a partnership or corporation, or disposes of a trade or business, they may be able to deduct start-up expenditures that were not previously allowed (Section 2(a)(c)).

Protection of Losses During Ownership Changes: The bill creates exceptions for net operating loss carryforwards and unused general business credits that arise during a "start-up period" (Section 3(a) and 3(b)). This helps preserve certain financial benefits when a business undergoes an ownership change.

Limits on Immediate Deductions: The deduction for start-up and organizational expenditures is capped at $20,000 (Section 2(a)(1)(A)(ii)). Any amount exceeding this, or exceeding the $120,000 threshold, must be amortized over a 180-month period rather than being deducted all at once.

Restrictions on Loss Preservation: The preservation of start-up losses and credits depends on a continuity of business requirement, meaning the new owner must continue the trade or business for a 2-year period (Section 3(a)(F)).

Timing Restrictions: Certain provisions, such as the inflation adjustments and specific transition rules, do not apply to businesses that begin before certain dates in 2026 (Section 2(a)(3) and Section 3(a)(G)(i)).