The One Big Beautiful Bill Act (OBBBA) includes significant favorable changes for companies engaging in domestic R&D activities.
Starting in tax years beginning after December 31, 2024, businesses will once again be allowed to immediately deduct Section 174 domestic R&D expenses. This reverses the previous requirement to amortize those expenses over five years.
- Effective for tax years beginning after December 31, 2024, domestic research & experimentation (R&E) expenditures can once again be fully expensed in the year incurred.
- Small businesses (those with an average annual gross receipts ≤ $31 million for tax years 2022-2024) have the option to elect retroactive deductions of Section 174 domestic R&D expenses that were previously amortized for the tax years 2022–2024. These businesses should file amended tax returns within 1 year of enactment of the OBBBA bill (i.e. by July 3, 2026) to elect full deductions of Section 174 costs and claim potential tax refunds for overpaid taxes.
- Large businesses, along with small businesses that opt to not file amended tax returns, may accelerate remaining unamortized domestic R&D deductions by taking them all in 2025, or by spreading them ratably over two years (2025 & 2026).
- Foreign Sec. 174 R&D expenditures must still be amortized over 15 years.
While this is great news for businesses with R&D expenditures, we know that there may be questions related to these changes in terms of how to approach the prior years, current year, and moving forward. RDIG is happy to help you navigate your options; please reach out to us and let us help answer any of your or your CPA’s questions.