Posted by William Mehi on 04.02.25
House Republicans' Fiscal Year 2025 Budget Resolution, passed on February 25, 2025, and is poised to make significant changes in the tax landscape with a $4.5 trillion tax-cut plan. A key component of this initiative is the proposed elimination of Section 174 amortization, a rule requiring businesses to spread their R&D deductions over five years (and 15 years for foreign costs) since 2022. This change may allow for immediate expensing and enhance Section 41 R&D tax credits.
The House Budget Committee's Fiscal Year 2025 plan was approved by the House. As a reconciliation bill, it can bypass a Senate filibuster with just 51 votes. The resolution directs the Ways and Means Committee to reduce revenue by $4.5 trillion over the next ten years a figure that insiders indicate includes the restoration of full R&D expensing. This aims to extend the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and address issues like Section 174 that have impacted businesses adversely.
Since 2022, companies have amortized approximately $100 billion in annual U.S. R&D spending, which has effectively reduced the immediate deductions to around $20 billion per year. The FY 2025 plan could reverse this trend by allowing firms to deduct the full $100 billion upfront, translating to an $80 billion annual increase in tax relief before credits.
When Will Section 174 Amortization End?
The timeline is tight but progressing rapidly. House Speaker Mike Johnson has expressed a desire to pass a complete reconciliation bill by April 2025. Committee drafting is already in progress, with the Ways and Means Committee responsible for finalizing tax details by mid-spring. Historically, reconciliation bills such as the TCJA took 6-9 months from resolution to enactment. Given that the FY 2025 resolution has already passed, businesses might see Section 174 amortization eliminated within 5-9 months, potentially as early as August 2025 or as late as December 2025.
The significant changes made by the TCJA were prospective, starting in 2018, suggesting that a January 2026 effective date is more likely. However, business lobbying, citing $50 billion in lost cash flow annually, may influence lawmakers to pursue a 2022 rollback. Currently, it's a toss-up with a 50-50 chance.
Reverting Section 174 Boosts Section 41 R&D Credits
Eliminating amortization is set to deliver significant benefits to users of the Section 41 R&D tax credit, which offsets 20% of qualified research expenses (QREs) above a baseline.
The proposed legislation includes some key updates:
What Now?
The end of Section 174 amortization is a very real possibility and businesses should remain vigilant regarding the Ways and Means Committee's progress this spring; as draft text is likely to be released by May 2025. Prepare now for either a potential 2025 implementation or a retroactive benefit for 2022. This proposed $4.5 trillion tax cut presents a tremendous opportunity, positioning R&D driven businesses to secure over $100 billion in support. Stay alert for crucial updates in April 2025.
Our tax experts at Tax Point Advisors will continue to monitor the progress of this bill and report on the potential benefits to come. If you have any questions regarding this new legislation or would like to begin your R&D claim, you can schedule a free consultation with our team.
Request a free assessment to determine qualifying R&D tax credit eligibility.
Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.
