Tax insight

Section 174A restores optionality to tax treatment of US research activities

Insight
5 minute read
August 20, 2025

What happened?

The “One Big Beautiful Bill Act” (Act), signed into law on July 4, introduces Section 174A, a new provision that permits an immediate deduction for domestic research and experimental (R&E) expenditures, including software development costs, paid or incurred in tax years beginning after December 31, 2024. The Act also provides elections for taxpayers to capitalize and amortize domestic R&E expenditures over specified periods and provides special rules for unamortized domestic R&E expenditures paid or incurred after December 31, 2021 and before January 1, 2025. Foreign research activities continue to be subject to the Section 174 capitalization and amortization requirements.

See our Tax Insights, President Trump signs H.R. 1, the “One Big Beautiful Bill Act” for an overview of the tax provisions included in the Act and Accounting for US reform In Depth for an overview of the financial reporting considerations.

Why is it relevant? 

The Act provides significant flexibility in the recovery of domestic R&E expenditures, including expenditures incurred in previous years. A taxpayer’s decision to deduct or capitalize R&E expenditures could affect other areas of the Code, such as the corporate alternative minimum tax (CAMT), Section 163(j), Section 170, the base erosion and anti-abuse tax (BEAT), foreign-derived deduction eligible income (FDDEI) (formerly foreign-derived intangible income or FDII), net CFC tested income (NCTI) (formerly global intangible low-taxed income or GILTI), foreign tax credits (FTCs), the creation of net operating losses (NOLs) that could be subject to the 80% limitation, and other attributes dependent on taxable income.

Actions to consider 

Business leaders in all sectors should evaluate the treatment of domestic R&E expenditures using models to determine the impact on their overall income tax liabilities and remaining estimated income tax payments for 2025. As Treasury begins developing guidance, companies should consider being proactive to address concerns or uncertainties related to these changes.