R&D Expensing Is Back: Section 174 After the 2025 Law
Part of our 2025 Tax Law Changes guide — the complete breakdown of the One Big Beautiful Bill Act.
Few provisions frustrated growing companies more than the 2022 change requiring research and experimental costs under Section 174 to be capitalized and amortized rather than deducted immediately. The 2025 One Big Beautiful Bill Act restored immediate expensing of domestic research.
What changed
- Domestic R&D can again be deducted in the year incurred.
- Foreign research generally remains subject to 15-year amortization.
- Catch-up relief allows many taxpayers to recover previously capitalized domestic costs, often via an accounting-method change or amended returns for eligible small businesses.
Why it matters
The prior rule created phantom taxable income for R&D-heavy startups that were burning cash — they owed tax on money they had spent on salaries and development. Restoring expensing improves cash flow and simplifies planning. It also interacts with the R&D tax credit (Section 41), which remains available.
Action items
Identify clients who capitalized domestic 174 costs in prior years, evaluate whether a Form 3115 method change or amended return captures the benefit, and coordinate with any R&D credit study. Confirm the current effective dates and small-business thresholds.
Educational and current as of publication. Tax figures, thresholds, and effective dates change and many provisions are temporary — confirm the current statute and IRS guidance before relying on any point here. Not legal or tax advice.
