What changed (and why it mattered)
For tax years beginning after December 31, 2024, you can again deduct domestic research and development costs in full the year you incur them. New Section 174A, created by the One Big Beautiful Bill Act (OBBBA, signed July 2025), permanently restores immediate expensing and ends the capitalize-and-amortize rule the 2017 Tax Cuts and Jobs Act imposed starting in 2022.
From 2022 through 2024, companies had to spread domestic R&D deductions over five years (15 for foreign). That inflated taxable income - a pre-profit startup spending heavily on engineering could owe real tax on money it never made, a cash hit at exactly the wrong stage.
| 2022-2024 (TCJA) | 2025+ (OBBBA, §174A) | |
|---|---|---|
| Domestic R&D | Capitalize, amortize over 5 years | Deduct in full, immediately |
| Foreign R&D | Capitalize, amortize over 15 years | Unchanged - still 15 years |
| Effect pre-profit | Tax owed on R&D you spent cash on | Deduction matches the cash spend |
One thing did not change: foreign R&D still must be capitalized and amortized over 15 years. Keep domestic and foreign research cleanly separated in your books so the deduction is easy to support.
The retroactive small-business election
If your business is small enough, you can apply the new rules backward - amending 2022 through 2024 to deduct R&D you previously had to capitalize, and potentially claim a refund.
Eligibility turns on the gross-receipts test: combined average annual gross receipts of roughly $31 million or less, tested for your 2025 tax year. The IRS set the mechanics - the elections and transition rules - in Revenue Procedure 2025-28.
For a startup that capitalized six figures of engineering cost in 2022-2024, the retroactive election can mean a real refund - not just a future deduction.
Should you amend 2022-2024?
Maybe - it depends on whether amending produces a refund worth the filing cost. Work through these with your CPA:
- You had material domestic R&D that you capitalized under the old rule.
- You paid tax in 2022-2024, or amending improves net operating losses you can use now.
- How it interacts with the R&D tax credit (§41) - the credit and the deduction are separate and should be coordinated.
- The cost and timing of amended returns versus the size of the expected refund.
What to do before you file
- Confirm the gross-receipts test for your 2025 tax year.
- Pull your 2022-2024 capitalized §174 balances from your books - clean them up first if they are not reliable.
- Talk to your CPA about the retroactivity election and Revenue Procedure 2025-28.
- Going forward, tag domestic versus foreign R&D cleanly so the deduction is simple to substantiate.
This is general information, not tax advice. R&D tax treatment is fact-specific - confirm the details with your CPA before you file or amend.