New tax law restores immediate R&D expensing in the US
A new tax law, formally titled the “One Big Beautiful Bill Act” (H.R. 1), has reversed the requirement for businesses to amortize (spread out deductions over time) Research and Development (R&D) expenses.
Domestic R&D expenditures can now be immediately deducted in the year they are incurred. This change applies to tax years beginning after December 31, 2024.
Key changes related to R&D expensing include:
- the restoration of immediate expensing for domestic R&D costs. Companies can choose immediate expensing or amortize eligible costs over at least 60 months.
- Foreign R&D expenses still require 15-year amortization.
- Software development costs are treated as R&D expenses and may be immediately expensed if performed domestically.
- Small businesses (under $31 million in average annual gross receipts after 2024) can retroactively apply expensing to tax years starting after December 31, 2021. Taxpayers can deduct remaining unamortized domestic R&D costs from 2022-2024 over one or two years, starting in the first tax year after December 31, 2024.
- Businesses claiming the federal R&D tax credit must reduce their deduction by the credit amount to avoid a double benefit. The bill also increases the refundable R&D credit for small businesses to $500,000.
Further IRS guidance is expected. This change is seen as significant for businesses, especially small and mid-sized companies, aiming to encourage domestic R&D.
Learn more on Tax Changes in the OBBB at https://www.goodwinlaw.com/en/insights/publications/2025/07/alerts-lifesciences-one-big-beautiful-bill-act-tax-implications