Article
Domestic research expenditures, section 174, under the One Big Beautiful Bill Act
July 18, 2025 · Authored by Kathleen Meade, Caitlin Slezak
Introduction
The One Big Beautiful Bill Act (OBBBA) (P.L. 119-21) introduces a permanent change to how domestic research expenses are treated for tax purposes. Specifically, it eliminates the requirement to capitalize these costs under section 174 and instead adds a new section 174A. This new provision allows businesses to either expense domestic research costs immediately or elect to capitalize and recover them over a period of at least 60 months or up to 10 years under section 59(e). These changes are generally implemented as an automatic accounting method change made on a cutoff basis without requiring a section 481(a) catchup adjustment. For more details, please refer to our key business-related provisions insight.
This overview highlights key provisions of the OBBBA and important planning considerations for the 2024 tax filing season.
Key takeaways
- Taxpayers are generally still required to capitalize section 174 costs for the 2024 tax year. Taxpayers who are not compliant in 2024 will generally need to file a method change with their 2024 tax return to comply.
- Model and coordinate the impact of capitalizing versus deducting section 174 costs in 2025 and beyond. Many taxpayers will benefit from continued capitalization of section 174 costs due to the impact on interest expense limitations and foreign provisions (BEAT, FDII, etc.).
- Foreign research must still be capitalized, and software development costs continue to be treated as research expenses under sections 174 and 174A.
- Small business taxpayers may consider electing into the retroactive provision., However, there is no guidance on how to make the election; small business taxpayers should hold 2024 returns if they wish to assess the retroactive provisions.
- Given the ongoing uncertainty around procedural details, it’s important to consult with specialists. Modeling different scenarios before methods and elections are made can help ensure the most strategic outcome.
