Among the handful of provisions in the House draft legislative package, called “The One, Big, Beautiful Bill,” is a long-awaited change to the treatment of research and experimental (R&E) expenditures under Section 174. The proposal would repeal the amortization requirement introduced by the Tax Cuts and Jobs Act (TCJA) and restore the ability for businesses to immediately expense domestic research and development (R&D) costs, reverting to the rules in place before 2022.
Under the TCJA, starting in tax year 2022, businesses have been required to capitalize and amortize domestic R&E costs over five years (fifteen years for foreign research), a significant departure from the longstanding rule of fully expensing R&D costs under Section 174.
The proposal would:
- Allow full expensing of domestic Section 174 R&E costs for tax years beginning after December 31, 2024, and before January 1, 2030
- Foreign R&D expenses are unchanged and must continue to be capitalized over a 15-year period
Notably absent from the bill is any guidance on whether taxpayers will be able to expense costs that have been already capitalized under the current rules for the tax years 2022-2024.
The proposal has been well received by industry groups and tax professionals, but its fate in the Senate remains uncertain.
We are closely monitoring this legislation and will continue to provide updates as more details emerge.
