Indiana Research and Development Credit

At a glance

• Jurisdiction: Indiana (IN)
• Credit name: Research Expense Credit (IC 6-3.1-4), credit code 822.
• Administering agency: Indiana Department of Revenue (DOR).
• Rate(s) and base: Regular method: 15% of the first $1 million of Indiana qualified research expenses (QREs) above the base amount, and 10% above $1 million ($150,000 plus 10% of the excess). The base cannot be less than 50% of current-year Indiana QREs. Alternative simplified credit (ASC), by election: 10% of Indiana QREs above 50% of the average Indiana QREs for the three preceding taxable years (5% of current-year Indiana QREs if there were no Indiana QREs in any of those three years). An alternative computation applies for the aerospace industry.
• Refundable? No.
• Transferable? No. Pass-through entities allocate the credit to owners.
• Carryforward: 10 years; no carryback. The current-year credit is applied before carryforwards.
• Annual cap / proration: None.
• Pre-approval / application and deadline: Not required. Claimed on the return.
• Forms: Schedule IT-20REC (Research Expense Tax Credit) with a copy of federal Form 6765; credit code 822; pass-through allocation on Schedule IN K-1.
• Sunset / recent changes: No sunset. No 2025 or 2026 legislation changed the credit. SB 243 (2026) updated Indiana's IRC conformity and § 174/174A add-backs.

What it is

Indiana offers a nonrefundable credit against state tax liability for increasing qualified research conducted in Indiana. It follows federal IRC § 41 definitions, with a higher 15% rate on the first $1 million of excess QREs and an optional simplified method. Indiana also exempts certain research and development property from sales and use tax, which is separate from this credit.

Who can claim it

Corporations, S corporations, partnerships, LLCs and LLPs (which pass the credit to owners), and trusts and estates (against their own liability only; beneficiaries other than grantor-trust owners cannot claim it). QREs must come from qualified research conducted in Indiana.

How it is calculated

• Regular method: Compute the base under § 41 using Indiana QREs and Indiana gross receipts; the base cannot be less than 50% of current-year Indiana QREs. Credit = 15% of the first $1 million of excess + 10% of the excess over $1 million.
• ASC: 10% × (Indiana QREs − 50% of the average Indiana QREs for the three preceding years), or 5% of current-year Indiana QREs if any of those years had no Indiana QREs.
• Taxpayers must report whether they claimed the federal credit under IRC § 41(a)(1) or (c)(4), and explain why if they claim the Indiana credit without the federal credit. A change to the federal credit is treated as a modification requiring an Indiana amended return.
• The credit applies against state tax liability (adjusted gross income tax, financial institutions tax and insurance premiums tax).

How to claim it

1. Complete Schedule IT-20REC, choose the regular method or ASC, and attach federal Form 6765.
2. Report the credit with code 822 on the return. Pass-through entities allocate the credit to owners on Schedule IN K-1.
3. Keep work papers showing how Indiana QREs and the base were computed.

Recent changes

• No 2025 or 2026 legislation amending IC 6-3.1-4 was identified (the DOR 2025 and 2026 legislative synopses list no change to the chapter).
• SB 243 (signed March 5, 2026): Updates Indiana's IRC conformity date to January 1, 2026. Indiana continues to require current expensing of both domestic and foreign research expenses in the year paid or incurred, requires add-backs of federal catch-up amortization of 2022–2024 research expenses, and requires small businesses making the federal retroactive election to add back amounts already deducted on prior Indiana returns. This affects Indiana taxable income, not the credit computation.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Indiana and other locations, how Indiana amounts reconcile to federal Form 6765, the Indiana credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Indiana tax.

1. Show that each activity was performed in Indiana.
2. Provide the regular-method base computation (including the 50% minimum base) or the three-year Indiana QRE history for the ASC.
3. Reconcile Indiana QREs to federal Form 6765 and state which federal method was used.
4. If no federal credit was claimed, explain why.
5. Provide the carryforward schedule (10-year limit) and show the current-year credit was applied first.
6. For pass-through credits, provide the IN K-1 allocations.

Common weak spots

• Ignoring the 50% minimum base in the regular method.
• Applying the 15% rate to all excess QREs instead of only the first $1 million.
• Not comparing the regular method with the ASC.
• Out-of-state research included.
• Federal credit changes on exam not reported to Indiana.
• Trust or estate beneficiaries claiming credits they cannot use.

Next steps

• Run a mock audit for Indiana
• Official source: Indiana Department of Revenue, research expense credit (opens in a new tab)
• Run the eligibility checker
• Book a scoping call with Swanson Reed (opens Swanson Reed's booking calendar in a new tab)
• Contact us: +1 (469) 206-4335 or hello@creditarmor.ai

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.