§ 195. Start-up expenditures

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1980

   Pub. L. 96–605 title I § 102(a) · 94 Stat. 3521

   Enacted · 26 U.S.C. § 195

   Added Pub. L. 96–605, title I, § 102(a), Dec. 28, 1980, 94 Stat. 3522

   Source evidence

   Code source credit
   Added Pub. L. 96–605, title I, § 102(a), Dec. 28, 1980, 94 Stat. 3522

   Enacted provision · exact public law section
   (a) In General.— Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by adding at the end thereof the following new section: “SEC, 195. START-UP E)(PENDITURES. “(a) Election To Amortize.— Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction ratably over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the business begins). “(b) Start-Up Expenditures.— For purposes of this section, the term ‘start-up expenditure’ means any amount— “(1) paid or incurred in connection with— “(A) investigating the creation or acquisition of an active trade or business, or “(B) creating an active trade or business, and “(2) which, if paid or incurred in connection with the expansion of an existing trade or business (in the same field as the trade or business referred to in paragraph (1)), would be allowable as a deduction for the taxable year in which paid or incurred. “(c) Election.— “(1) Time for making election.— An election under subsection (a) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the business begins (including extensions thereof). “(2) Scope of election.— The period selected under subsection (a) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years. “(3) Manner of making election.— An election under subsection (a) shall be made in such manner as the Secretary shall by regulations prescribe. “(d) Business Beginning.— For purposes of this section, an acquired trade or business shall be treated as beginning when the taxpayer acquires it.”

2. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 div. A title I § 94(a) · 98 Stat. 494

   1. Amended · 26 U.S.C. § 195(a)

      Pub. L. 98–369 amended subsec. (a) generally

   2. Substituted · 26 U.S.C. § 195(a)

      Pub. L. 98–369 substituting provisions dealing with capitalization of expenditures for provisions dealing with election to amortize

   Source evidence

   Code amendment note
   Subsec. (a). Pub. L. 98–369 amended subsec. (a) generally, substituting provisions dealing with capitalization of expenditures for provisions dealing with election to amortize.

   Enacted provision · exact public law section
   (a) In General.— Section 195 (relating to start-up expenditures) is amended to read as follows: “SEC. 195. START-UP EXPENDITURES. “(a) Capitalization of Expenditures.— Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures. “(b) Election To Amortize.— “(1) In general.— Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins). “(2) Dispositions before close of amortization period— In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165. “(c) Definitions.— For purposes of this section— “(1) Start-up expenditures.— The term ‘start-up expenditure’ means any amount— “(A) paid or incurred in connection with— “(i) investigating the creation or acquisition of an active trade or business, or “(ii) creating an active trade or business, or “(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and “(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred. The term ‘start-up expenditure’ does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174. “(2) Beginning of trade or business.— “(A) In general.— Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe. “(B) Acquired trade or business.— An acquired active trade or business shall be treated as beginning when the taxpayer acquires it. “(d) Election.— “(1) Time for making election.— An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof). “(2) Scope of election.— The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.”

3. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 div. A title I § 94(a) · 98 Stat. 494

   1. Amended · 26 U.S.C. § 195(b)

      Pub. L. 98–369 amended subsec. (b) generally

   2. Substituted · 26 U.S.C. § 195(b)

      Pub. L. 98–369 substituting provisions dealing with election to amortize for provisions dealing with start-up expenditures

   Source evidence

   Code amendment note
   Subsec. (b). Pub. L. 98–369 amended subsec. (b) generally, substituting provisions dealing with election to amortize for provisions dealing with start-up expenditures.

   Enacted provision · exact public law section
   (a) In General.— Section 195 (relating to start-up expenditures) is amended to read as follows: “SEC. 195. START-UP EXPENDITURES. “(a) Capitalization of Expenditures.— Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures. “(b) Election To Amortize.— “(1) In general.— Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins). “(2) Dispositions before close of amortization period— In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165. “(c) Definitions.— For purposes of this section— “(1) Start-up expenditures.— The term ‘start-up expenditure’ means any amount— “(A) paid or incurred in connection with— “(i) investigating the creation or acquisition of an active trade or business, or “(ii) creating an active trade or business, or “(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and “(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred. The term ‘start-up expenditure’ does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174. “(2) Beginning of trade or business.— “(A) In general.— Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe. “(B) Acquired trade or business.— An acquired active trade or business shall be treated as beginning when the taxpayer acquires it. “(d) Election.— “(1) Time for making election.— An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof). “(2) Scope of election.— The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.”

4. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 div. A title I § 94(a) · 98 Stat. 494

   1. Amended · 26 U.S.C. § 195(c)

      Pub. L. 98–369 amended subsec. (c) generally

   2. Substituted · 26 U.S.C. § 195(c)

      Pub. L. 98–369 substituting provisions setting forth definitions for provisions dealing with election

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 98–369 amended subsec. (c) generally, substituting provisions setting forth definitions for provisions dealing with election.

   Enacted provision · exact public law section
   (a) In General.— Section 195 (relating to start-up expenditures) is amended to read as follows: “SEC. 195. START-UP EXPENDITURES. “(a) Capitalization of Expenditures.— Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures. “(b) Election To Amortize.— “(1) In general.— Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins). “(2) Dispositions before close of amortization period— In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165. “(c) Definitions.— For purposes of this section— “(1) Start-up expenditures.— The term ‘start-up expenditure’ means any amount— “(A) paid or incurred in connection with— “(i) investigating the creation or acquisition of an active trade or business, or “(ii) creating an active trade or business, or “(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and “(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred. The term ‘start-up expenditure’ does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174. “(2) Beginning of trade or business.— “(A) In general.— Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe. “(B) Acquired trade or business.— An acquired active trade or business shall be treated as beginning when the taxpayer acquires it. “(d) Election.— “(1) Time for making election.— An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof). “(2) Scope of election.— The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.”

5. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 div. A title I § 94(a) · 98 Stat. 494

   1. Amended · 26 U.S.C. § 195(d)

      Pub. L. 98–369 amended subsec. (d) generally

   2. Substituted · 26 U.S.C. § 195(d)

      Pub. L. 98–369 substituting provisions dealing with election for provisions dealing with business beginning

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 98–369 amended subsec. (d) generally, substituting provisions dealing with election for provisions dealing with business beginning.

   Enacted provision · exact public law section
   (a) In General.— Section 195 (relating to start-up expenditures) is amended to read as follows: “SEC. 195. START-UP EXPENDITURES. “(a) Capitalization of Expenditures.— Except as otherwise provided in this section, no deduction shall be allowed for start-up expenditures. “(b) Election To Amortize.— “(1) In general.— Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins). “(2) Dispositions before close of amortization period— In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies, any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165. “(c) Definitions.— For purposes of this section— “(1) Start-up expenditures.— The term ‘start-up expenditure’ means any amount— “(A) paid or incurred in connection with— “(i) investigating the creation or acquisition of an active trade or business, or “(ii) creating an active trade or business, or “(iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business, and “(B) which, if paid or incurred in connection with the operation of an existing active trade or business (in the same field as the trade or business referred to in subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred. The term ‘start-up expenditure’ does not include any amount with respect to which a deduction is allowable under section 163(a), 164, or 174. “(2) Beginning of trade or business.— “(A) In general.— Except as provided in subparagraph (B), the determination of when an active trade or business begins shall be made in accordance with such regulations as the Secretary may prescribe. “(B) Acquired trade or business.— An acquired active trade or business shall be treated as beginning when the taxpayer acquires it. “(d) Election.— “(1) Time for making election.— An election under subsection (b) shall be made not later than the time prescribed by law for filing the return for the taxable year in which the trade or business begins (including extensions thereof). “(2) Scope of election.— The period selected under subsection (b) shall be adhered to in computing taxable income for the taxable year for which the election is made and all subsequent taxable years.”

6. 2004

   Pub. L. 108–357 § 902(a)(2) · 118 Stat. 1418

   Substituted · 26 U.S.C. § 195(b)

   Pub. L. 108–357, § 902(a)(2), substituted “deduct” for “amortize” in heading

   Source evidence

   Code amendment note
   Subsec. (b). Pub. L. 108–357, § 902(a)(2), substituted “deduct” for “amortize” in heading.

   Enacted provision · exact public law section
   (2) Conforming amendment.— Subsection (b) of section 195 is amended by striking “Amortize” and inserting “Deduct” in the heading.

7. 2004

   Pub. L. 108–357 § 902(a)(1) · 118 Stat. 1418

   Amended · 26 U.S.C. § 195(b)(1)

   Pub. L. 108–357, § 902(a)(1), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins).”

   Source evidence

   Code amendment note
   Subsec. (b)(1). Pub. L. 108–357, § 902(a)(1), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “Start-up expenditures may, at the election of the taxpayer, be treated as deferred expenses. Such deferred expenses shall be allowed as a deduction prorated equally over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the active trade or business begins).”

   Enacted provision · exact public law section
   (1) Allowance of deduction.— Paragraph (1) of section 195(b) (relating to start-up expenditures) is amended to read as follows: “(1) Allowance of deduction.— If a taxpayer elects the application of this subsection with respect to any start-up expenditures— “(A) the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of— “(i) the amount of start-up expenditures with respect to the active trade or business, or “(ii) $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and “(B) the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.” .

8. 2010

   Creating Small Business Jobs Act of 2010

   Pub. L. 111–240 title II § 2031(a) · 124 Stat. 2504

   Added · 26 U.S.C. § 195(b)(3)

   Pub. L. 111–240 added par. (3)

   Source evidence

   Code amendment note
   Subsec. (b)(3). Pub. L. 111–240 added par. (3).

   Enacted provision · exact public law section
   (a) Start-up Expenditures.— Subsection (b) of section 195 of the Internal Revenue Code of 1986 26 USC 195. is amended by adding at the end the following new paragraph: “(3) Special rule for taxable years beginning in 2010.— In the case of a taxable year beginning in 2010, paragraph (1)(A)(ii) shall be applied— “(A) by substituting ‘$10,000’ for ‘$5,000’, and “(B) by substituting ‘$60,000’ for ‘$50,000’.” .

9. 2025

   Pub. L. 119–21 title VII § 70302(b)(6) · 139 Stat. 192

   Substituted · 26 U.S.C. § 195(c)(1)

   Pub. L. 119–21 substituted “174, or 174A” for “or 174” in concluding provisions

   Unresolved: Pub. L. 119–21 was not found in the local Statutes at Large index.

   Source evidence

   Code amendment note
   Subsec. (c)(1). Pub. L. 119–21 substituted “174, or 174A” for “or 174” in concluding provisions.

   Effective date note
   Amendment by Pub. L. 119–21 applicable to amounts paid or incurred in taxable years beginning after Dec. 31, 2024, subject to election for retroactive application by certain small businesses and election to deduct certain unamortized amounts paid or incurred in taxable years beginning before Jan. 1, 2025, see section 70302(e), (f) of Pub. L. 119–21, set out as an Effective Date note under section 174A of this title.

12 of 13 references resolved to an enrolled provision · 1 unresolved