Ricerca
OBBBA · IRC §174A

Domestic R&D is fully deductible again

For three painful years, the tax code made you capitalize and amortize research costs. The One Big Beautiful Bill Act changed that. New IRC §174A restores immediate, full expensing of domestic R&E — and opens the door to catch-up deductions and small-business refunds.

Talk to us about §174A The R&D credit

The problem (2022–2024)

Under the TCJA, for tax years beginning after December 31, 2021, businesses had to capitalize and amortize research & experimental costs instead of deducting them — domestic over 5 years, foreign over 15. Innovative companies paid tax on income they’d spent on R&D, crushing cash flow.

The change (§174A)

The One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, created new IRC §174A, permanently restoring immediate, full expensing of domestic R&E for tax years beginning after December 31, 2024. Software development is included.

What the first year looks like

Immediate expensing dramatically accelerates the deduction versus prior 5-year amortization.

Illustrative. First-year federal deduction on $1,000,000 of domestic R&E placed in service in 2025 — about $100,000 under prior 5-year amortization vs. the full $1,000,000 under §174A. Actual results depend on your facts; this is not a projection of your benefit.
View data
First-year deduction on $1,000,000 domestic R&E (illustrative)
Treatment First-year deduction
Prior TCJA §174 (5-yr amortization)$100,000
New §174A (immediate)$1,000,000
The details

What §174A actually says

Foreign R&E unchanged

Research performed outside the U.S. must still be capitalized and amortized over 15 years under §174.

Optional elections

Prefer to spread it? You may elect to capitalize and amortize domestic R&E over no less than 60 months, or use the separate 10-year write-off election under §59(e).

Catch-up for 2022–2024

Deduct your remaining unamortized domestic balance fully in 2025, or split it 50/50 across 2025 and 2026.

Small-business refunds

Eligible small businesses (≤ $31M avg. gross receipts, §448(c)) may amend 2022–2024 to apply §174A retroactively — potentially generating refunds.

Rev. Proc. 2025-28

IRS mechanics (Aug 28, 2025): automatic method changes via Form 3115, elections, and the small-business relief. Several windows are time-sensitive.

Works with the §41 credit

The credit still applies and ties to your domestic §174A amounts. Mind the §280C(c) reduced-deduction vs. reduced-credit choice.

Key dates

How we got here — and what’s ahead

  1. Dec 2017
    TCJA enacted

    The Tax Cuts and Jobs Act set the stage for required capitalization of research costs.

  2. TY 2022
    Capitalization begins

    For tax years beginning after Dec 31, 2021, R&E had to be capitalized and amortized — domestic over 5 years, foreign over 15.

  3. Jul 4, 2025
    OBBBA signed (P.L. 119-21)

    The One Big Beautiful Bill Act created new IRC §174A restoring immediate domestic R&E expensing.

  4. TY 2025
    §174A takes effect

    Immediate, full expensing of domestic R&E for tax years beginning after Dec 31, 2024.

  5. Aug 28, 2025
    Rev. Proc. 2025-28

    IRS procedural guidance: automatic method changes (Form 3115), elections, and small-business retroactive relief.

  6. Jul 6, 2026
    Small-business amend window

    Deadline (or the 3-year statute of limitations, if earlier) for eligible small businesses to amend 2022–2024 returns.

The bottom line

Immediate deduction + the credit = materially better cash flow

§174A gives you the deduction now; §41 gives you the credit. Captured together and correctly, the combination meaningfully improves your after-tax position. Ricerca makes sure you get both — with documentation that holds up.

Map your §174A + credit position

Primary & authoritative sources

Tax law evolves and guidance is updated; verify current rules and deadlines with a qualified professional before acting.

FAQ

Section 174A — frequently asked questions

Did the R&D tax credit itself change?
No. The §41 credit did not change. What changed is how you deduct research costs — new §174A restores immediate expensing of domestic R&E. You can claim the deduction and the credit.
When does §174A take effect?
For tax years beginning after December 31, 2024 — i.e., 2025 for calendar-year taxpayers.
Does §174A cover software development?
Yes. Domestic software development costs are explicitly treated as R&E expenditures eligible for immediate expensing under §174A.
What about foreign research?
Foreign R&E is unchanged — it must still be capitalized and amortized over 15 years under §174.
Can we recover tax on R&D we capitalized in 2022–2024?
Possibly. All taxpayers can deduct the remaining unamortized domestic balance either fully in the first tax year beginning after Dec 31, 2024, or ratably across 2025 and 2026. Eligible small businesses (≤ $31M average gross receipts under §448(c)) may instead apply §174A retroactively by amending 2022–2024 returns — potentially generating refunds — generally by the earlier of July 6, 2026 or the refund statute of limitations.
What is Rev. Proc. 2025-28?
IRS procedural guidance issued August 28, 2025 that spells out how to adopt §174A — automatic accounting-method changes via Form 3115, the available elections, and the small-business retroactive relief. Several actions are deadline-sensitive, so timing matters.
How does §280C affect the credit?
If you claim the credit, you weigh the §280C(c) interaction — reduce your deduction by the credit amount, or elect the reduced credit. A study models both so you keep the better after-tax result.

Don’t leave §174A on the table

Whether you’re filing 2025 or revisiting 2022–2024, we’ll map your domestic expensing and credit position — reviewed and finalized by R&D experts and backed by Audit Protection. Contact us for pricing tailored to your study.

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