Congress Restored Immediate Expensing for R&D Costs
The One Big Beautiful Bill Act permits businesses to deduct domestic research costs starting in 2025.
Updated on Oct. 5, 2026 in Taxes
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The One Big Beautiful Bill Act (P.L. 119-21) permanently restored immediate expensing for domestic research and experimental expenditures for tax years beginning after December 31, 2024. This change reverses the mandatory five-year amortization rule that was in effect from 2022 to 2024.
Why it matters
The restoration of immediate expensing simplifies tax planning for companies heavily invested in innovation by allowing them to deduct domestic research and software development costs in the year they occur. It marks a significant shift from the previous requirement that forced firms to amortize these expenses over a five-year period.
Foreign-performed research costs remain subject to capitalization over a 15-year period under IRC section 174. Meanwhile, software development costs now qualify for immediate deduction, provided they pass established research tests.
The players
Grant Thornton
This is a global accounting and advisory firm that provides tax consulting and regulatory guidance to businesses.
The details
Under the new IRC section 174A, firms must now reconcile their research credit studies, the section 174A method, and section 280C(c) elections. Businesses are required to track AI-related development and internal-use software costs carefully to ensure they meet the specific qualifications for immediate expensing.
Timeline
From 2022 to 2024, domestic research expenditures were subject to mandatory capitalization and five-year amortization.
The new rules for immediate expensing apply to all tax years beginning on or after January 1, 2025.
Grant Thornton specialists hosted a technical webcast regarding the new tax law on September 29, 2026.
Market Dynamics
The transition back to immediate expensing signals a shift in federal tax policy aimed at incentivizing domestic innovation. It aligns with historical efforts to reduce the financial burden on U.S. corporations during periods of rapid technological development.
For retail investors and stakeholders, this shift may lead to improved cash flow for companies that prioritize heavy domestic R&D spending. Businesses can now immediately recover costs, which may reduce their overall tax liability in the current fiscal year compared to the prior amortization rule.
The takeaway
Companies should review their project tracking procedures to ensure domestic research costs are correctly classified under the new IRC section 174A. Consulting with a tax professional is recommended to reconcile internal software development costs with the latest amortization changes.
Further reading
For more on evolving corporate tax regulations, visit the Taxes section.
Source note: This article includes information reported by Thomson Reuters.
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