The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, allows all businesses to fully expense R&D costs starting in tax year 2025.
Key Highlights
- Starting in 2025, domestic research expenditures are fully deductible again under the new Section 174A.
- Foreign R&E must still be amortized over 15 years.
- Eligible small businesses that capitalized R&E costs in 2022–2024, may have an opportunity to retroactively claim those deductions.
What This Means for Tax Years 2022–2024
If your company capitalized and amortized R&D costs in 2022, 2023, or 2024 there may be an opportunity to revisit those years.
- All companies with capitalized domestic R&D expenses from 2022-2024 can elect a catch-up deduction. Unused capitalized costs can be accelerated to 2025, or split evenly between 2025 and 2026.
- Additionally, eligible small businesses may elect to retroactively apply full expensing for domestic R&D costs to tax years 2022-2024 via election of 174A, creating opportunities for potential refund claims by filing amended returns. The company must average under $31 million in gross receipts for tax years 2022-2024 in order to qualify.
- This retroactive election for certain eligible small businesses is only available for one year after the OBBB was enacted (i.e. through July 3, 2026).
Why the R&D Tax Credit Still Matters:
- Amortization vs. credit: The old Section 174 amortization rule was a temporary timing difference — a deferral of deductions, not a loss of them. But not claiming the R&D credit is a permanent difference. You don’t get that money back later. Once the return is filed without it, the benefit is gone unless you amend in the future to take it.
If you are planning on claiming the R&D Credit, we recommend continuing to gather your technical supporting documentation that substantiates the credits claimed.
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If you’d like to discuss how you might benefit from these changes in the regulation, we are happy to discuss strategies with you.
