Federal Tax Credits · research and development · FED-RD-001
Credit for Increasing Research Activities (Internal Revenue Code §41)
Publication revised September 24, 2026. Sourcebook page 18.
Credit amount / calculation
Regular research-credit method or the alternative simplified method. The latter generally equals 14% of current qualified expenses above 50% of the preceding three-year average.
Business fit and eligible activity
A sawmill, secondary manufacturer or biomass business can qualify when it performs genuine technological experimentation to improve a product or process. Routine troubleshooting is not enough. Qualified research activity. Ordinary production, routine quality control and an equipment purchase alone do not qualify.
Illustrative business benefit
Assume qualifying expenses were incurred in each of the preceding three years. Current expenses of $300,000 and a three-year average of $200,000 give ($300,000 - $100,000) x 14% = $28,000 before federal tax limits and the deduction/reduced-credit election. A different rule applies when a preceding year has no qualified expenses.
Timing / first action
Tax-year claim: document the eligible expense, hire or placed-in-service date and meet any separate certification deadline. Identify the technical uncertainty and start contemporaneous project records before trying to calculate the credit.
Official sources
Related programs
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Clean Electricity Production Credit (Internal Revenue Code §45Y)
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Up to
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