For seven years, businesses that spent money on domestic research and development had to amortize those costs over five years instead of deducting them immediately — a rule from the 2017 Tax Cuts and Jobs Act that hit software developers and product-focused small businesses especially hard. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, reversed this through a new Internal Revenue Code Section 174A, and the change is permanent.
What Changed
Under new Section 174A, domestic research and experimental (R&E) expenditures — including software development costs, related payroll, and contractor costs — are fully deductible in the year incurred again, for tax years beginning after December 31, 2024. There’s no phase-in and no sunset date built into the law; unlike some other OBBBA provisions, this one doesn’t expire.
Foreign R&D Didn’t Get the Same Treatment
Research conducted outside the United States still has to be amortized over 15 years under the original TCJA rule — OBBBA only restored immediate expensing for domestic research. If your business has both U.S. and overseas R&D teams, this creates a meaningful incentive to keep research activity domestic going forward, on top of whatever non-tax reasons already exist.
What Happens to R&D Costs Already Being Amortized
Businesses that were mid-amortization on domestic R&E costs capitalized between 2022 and 2024 had a choice: deduct the entire remaining unamortized balance in the first tax year beginning after December 31, 2024, or split it — 50% in 2025 and the remaining 50% in 2026. Either way, that transition relief is a one-time catch-up, not an ongoing election.
A Retroactive Window That Already Closed
Smaller businesses — those averaging $31 million or less in gross receipts over a three-year period — had the option to amend 2022 through 2024 returns to apply immediate expensing retroactively. That election window closed July 6, 2026 (or each business’s normal statute-of-limitations deadline, if earlier), so this option is no longer available for anyone who didn’t already file the amendment.
How This Interacts With the R&D Tax Credit
Section 41’s research tax credit still exists separately from Section 174A expensing, and the two now work together more cleanly — the law explicitly ties qualified research expenditures for credit purposes to the same domestic R&E amounts that qualify under 174A. Combined with 100% bonus depreciation on equipment, a research-heavy small business now has two of its biggest cost categories — equipment and R&D — both eligible for immediate, same-year deductions rather than being spread out over several years.
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