History
The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated immediate expensing of domestic R&D costs beginning in 2022, requiring amortization over 5 years (and 15-year amortization for foreign R&D expenses). This created a significant tax burden on taxpayers participating in research and development activities and discouraged many businesses from continuing their R&D growth, drastically slowing innovation efforts across the United States.
Signed Version of the “One Big Beautiful Bill”
- Introduces Section 174A, which reinstates the immediate expensing of domestic R&D costs in the year the expenses are incurred.
- Businesses that capitalized domestic R&D expenses from 2022-2024 can elect a recovery deduction over 1 or 2 years beginning in 2025.
- Eligible small businesses can retroactively apply full expensing for tax periods starting after December 31, 2021 (tax years 2022-2024).
- Retains 15-year amortization for foreign R&D.
Impact
The law change provides permanent legislature that incentivizes businesses to continue investing in U.S.-based research activities. With the return of immediate expensing for research costs under Section 174A, businesses can now invest in new ideas with confidence. The change strengthens the value and appeal of the R&D tax credit, spurring ongoing investment in research and economic growth.