Which incentive for business investment allowing deduction of a percentage of investment costs from taxes?

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Investment tax credits provide a direct reduction in tax liability equal to a percentage of eligible investment costs, making them a tangible incentive to invest. This type of credit lowers taxes owed dollar-for-dollar, rather than just deferring them or accounting for costs in another way, which is why it best fits the description of allowing deduction of a portion of investment costs from taxes.

The other ideas don’t fit as tax-based incentives for investment: cost escalation refers to rising project or input costs over time, not a tax deduction; marginal tax rate is the percentage paid on the last dollar of income, not a deduction tied to an investment; and time value of money is about comparing cash flows over time, not a direct tax credit tied to the investment cost.

For example, if you invest $1,000,000 and the credit is 20%, you would receive a $200,000 tax credit against taxes owed, effectively lowering the net cost of the investment.