What Changed With Section 174 R&D Expensing (Section 174A)?

Businesses can once again deduct U.S. research and development costs in the year they pay them. The One, Big, Beautiful Bill Act added Section 174A, which ends the five-year amortization rule for domestic research costs paid or incurred in tax years beginning after December 31, 2024.

$31 millionSmall businesses that met the gross receipts test for their first tax year beginning after December 31, 2024 (average annual gross receipts of $31 million or less for the three prior years, for tax years beginning in 2025) had an extra option to apply the new rules back to 2022.

From 2022 through 2024, the Tax Cuts and Jobs Act version of Section 174 made businesses capitalize research and experimental costs, including software development, and deduct them over five years for U.S. research and 15 years for foreign research. The One, Big, Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) added a new Section 174A. For tax years beginning after December 31, 2024, domestic research or experimental expenditures can be deducted in full in the year they are paid or incurred. Businesses can instead elect to capitalize them and spread them over at least 60 months. Foreign research costs stay under Section 174 and are still amortized over 15 years.

Last checked: November 9, 2026. This page explains the rules only. It is general information, not legal, tax, or financial advice.

The short version

Domestic research and experimental costs paid or incurred in tax years beginning after December 31, 2024 can be deducted right away under Section 174A.
You can elect to capitalize them instead and amortize them over 60 months or more. The election is made on a timely filed original return, including extensions, and you have to stick with it unless the IRS approves a change.
Software development costs still count as research or experimental expenditures.
Foreign research costs are still amortized over 15 years under Section 174.
Domestic costs capitalized from 2022 through 2024 that haven't been deducted yet can be written off in the first tax year beginning after December 31, 2024, or split evenly over that year and the next.
If you claim the federal research credit, your Section 174A deduction (or capitalized amount) is reduced by the amount of the credit, unless you elect a reduced credit instead.

Who qualifies

Any taxpayer with research or experimental expenditures connected to its trade or business, as long as the research is done in the United States.
Businesses that develop software, since the law treats software development costs as research or experimental expenditures.
Small businesses that met the gross receipts test for their first tax year beginning after December 31, 2024 (average annual gross receipts of $31 million or less for the three prior years, for tax years beginning in 2025) had an extra option to apply the new rules back to 2022. That election had to be made by July 6, 2026, or earlier if the deadline to claim a refund for that year ran out first.
The rules don't cover the cost of buying or improving land, depreciable property used in research, or exploring for oil, gas or other minerals.

How to get it

How to get started

Sort your research costs into domestic and foreign. Only domestic costs get the immediate deduction.
Decide with your tax preparer whether to deduct domestic costs right away or elect to amortize them over 60 months or more. Amortizing can make sense in some cases, such as when you want to spread out deductions.
If you capitalized domestic costs in 2022, 2023 or 2024, decide whether to deduct the remaining amount in your first tax year beginning after December 31, 2024, or over that year and the next.
If you claim the research credit on Form 6765, factor in the rule that reduces your research deduction by the credit, and whether to elect the reduced credit instead.
Follow the IRS procedures for these accounting method changes and elections. Rev. Proc. 2025-28 explains them, and Rev. Proc. 2026-32 updated the automatic method change procedures in 2026.

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FAQ

Can I deduct R&D expenses immediately in 2025 and 2026?

Yes, for domestic research or experimental expenditures paid or incurred in tax years beginning after December 31, 2024. Section 174A allows the deduction in the year the costs are paid or incurred. Foreign research costs still have to be amortized over 15 years.

What is the difference between Section 174 and Section 174A?

Section 174A covers domestic research costs and allows an immediate deduction, with an option to amortize over at least 60 months. Section 174 now covers only foreign research costs, which must be capitalized and amortized over 15 years.

Do software development costs count?

Yes. Section 174A says any amount paid or incurred in connection with developing software is treated as a research or experimental expenditure.

What happens to R&D costs I capitalized in 2022 through 2024?

For domestic costs from those years that haven't been deducted yet, you can elect to deduct the remaining amount in your first tax year beginning after December 31, 2024, or evenly over that year and the next. If you don't make that election, you keep amortizing them on the old schedule.

Can a small business still amend 2022 through 2024 returns to use the new rules?

The retroactive election for small businesses had to be made by July 6, 2026, or by the earlier refund-claim deadline for the year, so that window has closed. Small businesses could also use that window to make or revoke the reduced research credit election for those years.

Does the R&D tax credit affect my Section 174A deduction?

Yes. Your domestic research deduction, or the amount you capitalize, is reduced by the amount of the research credit you claim. You can instead elect a reduced credit on a timely filed return, and then the deduction isn't reduced. That election can't be revoked once made.