Posted by Robert Bryant, Esq., CPA on 07.07.25

By now you undoubtedly have heard the news about the One Big Beautiful Bill Act H.R. 1 (aka "OBBA") which was signed into law on Friday, July 4. The impact on the US based R&D taxpayers is both positive and immense!

Below is a short synopsis of the pertinent portions of the OBBBA as it relates to the R&D tax credit and more importantly, the extinguishment of the negative impact of IRC Section 174 and the capitalization and amortization impact. These R&D changes can be summarized in three broad aspects:

1. Beginning in 2025, domestic research costs are now fully deductible under the new IRC section 174A
   • Alternatively, the taxpayer may still elect to capitalize and amortize those amounts over its useful life, if they so choose, but:
     • not for less than 60 months
     • foreign R&D must still be amortized over 15 years
2. Taxpayers who properly capitalized domestic R&D expenses in tax years 2022 through 2024 can:
   • elect a catch-up deduction and elect to expense those unamortized amounts fully in 2025
     • Or alternatively, write the unamortized amounts off equally in 2025 and 2026
3. Lastly, qualifying small businesses may elect to go back to 2022, 2023 and 2024 and:
   • amend their tax returns to reflect the new Section 174A law
     • Here, an eligible small business is one having gross receipts less than $31M as of 12.31.2024
     • Per IRC Section 448(a)
     • this election must be made within one year of the bill’s enactment

Observations:

The new law is extremely favorable to the R&D taxpayer, offering a great deal of flexibility in terms of their 2025 and 2026 tax planning. Under this new 174A code section, most R&D taxpayers will likely have a greatly reduced tax liability and a possible tax refund.

One of the biggest advantages for the R&D taxpayer is the retroactive Section 174 adjustment that the OBBBA provides for eligible small businesses. Many US taxpayers will be considered a “small business” and will therefore be eligible to amend tax years 2022, 2023 and 2024 and reverse the negative impact of the capitalization and amortization rules imposed by Section 174.  In fact, the retro reinstatement of the previous tax years, as well as the availability to write off the unamortized amounts in either or 2025 & 2026, makes it as if the original TCJA Section 174 impact was a non-existing event, for the small business R&D taxpayer.  

Tax Point Advisors is excited about this new law change and would love to work with you concerning your specific tax position and best strategies for 2025 and beyond. Please feel free to reach out to us to schedule a call at your earliest convenience.

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