One Big Beautiful Bill Act Catalyzes U.S. Research and Development

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act of 2025 (“OBBB”) into law, restoring full expensing of domestic research or experimental expenditures (“R&E”) in the year incurred under new Code Section 174A. The final law is applicable to tax years beginning after December 31, 2024. Under the OBBB, the treatment of foreign R&E expenditures will continue to be capitalized and amortized over a 15-year period. This difference between domestic and foreign R&E Expenses reflects a continued policy focus on incentivizing U.S. based research and development activity.

Under the current law, enacted by the Tax Cuts and Jobs Act of 2017 (“TCJA”), taxpayers are required to capitalize and amortize domestic R&E expenditures over a 5-year period (or a 15-year period for foreign R&E costs) for tax years beginning after December 31, 2021, through December 31, 2024.

For domestic R&E expenditures, new Code Section 174A provides taxpayers with the option to deduct the costs immediately or elect to capitalize and amortize the expenditures ratably over a period selected by the taxpayer, but not less than 60 months, beginning with the month in which the taxpayer first realizes benefits from the expenditures. Taxpayers are also provided with an optional 10-year write-off of otherwise deductible domestic R&E costs.

The changes under the new law would be treated as a change in accounting method applied on a cut-off basis for any domestic R&E expenditures paid or incurred in taxable years beginning after December 31, 2024.

The OBBB also requires taxpayers to reduce their deductible domestic R&E expenditures by the amount of the R&D tax credit.

The new law also provides for several other taxpayer friendly changes including:

• The election for retroactive application of Section 174A by certain small businesses
  • Taxpayers with average annual gross receipts of $31 million or less for the first taxable year beginning after December 31, 2024, are provided an election to apply the change retroactively for tax years beginning after December 31, 2021. This will require taxpayers to file amended returns for each taxable year affected by the election and will be treated as a change in accounting method. This election on an amended return must be made no later than July 4, 2026.

• Acceleration of unamortized domestic R&E expenditures
  • All taxpayers are provided with an election to deduct remaining unamortized domestic R&E costs from taxable years beginning after December 31, 2021, and before January 1, 2025, over a one or two-taxable year period, dependent on the taxpayer’s discretion. This change must be made for or beginning with the first taxable year beginning after December 31, 2024. Taxpayers choosing this election will be treated as initiating a change in accounting method.

In summary, the reinstatement of full expensing for domestic R&E expenditures under the OBBB marks a significant win for businesses investing in innovation. By allowing immediate deductions for qualifying domestic R&E costs—or flexible amortization options—businesses gain greater control over cash flow, tax planning, and investment strategy. The ability to retroactively apply these provisions or accelerate remaining amortization further enhances the financial benefits, particularly for smaller businesses. However, careful consideration of the available elections and required accounting method changes is critical to fully leverage the new law. For companies with ongoing or planned R&E investments, these changes provide a renewed incentive to invest in U.S.-based research and development activities. These rules are favorable in allowing but not requiring the deduction of previously capitalized and unamortized R&E over one or two years. The result gives taxpayers the ability to avoid any unfavorable tax consequences while catalyzing U.S. innovation and R&D once again.

If you have any questions regarding how the OBBB’s changes to the treatment of R&E expenditures and related tax elections may impact your business, please contact Yair Holtzman, Partner and Leader of Anchin’s Research & Development Tax Credits group, or your Anchin Relationship Partner.