Short answer. Section 174 is the tax rule for deducting research and experimental costs. A 2017 change took effect in 2022 and forced companies to capitalize those costs and write them off over five years for domestic work, instead of deducting them right away. Section 174A reversed that for domestic research starting in 2025. Section 174 is the deduction side of R&D tax, separate from the Section 41 credit.
What Section 174 covers
It is about timing: when research costs become a deduction.
Section 174 applies to research and experimental expenditures, the costs of developing or improving a product, process, or software, including wages, supplies, and contract research. It governs how and when those costs reduce taxable income.
It is a deduction rule, not a credit. Section 174 sets the timing of the write-off, while Section 41 is the separate credit that rewards increases in research activity. The same cost can run through both.
The 2022 to 2024 amortization rule
A 2017 change made research costs much more expensive to carry.
The Tax Cuts and Jobs Act of 2017 ended immediate expensing of research costs. For tax years beginning after December 31, 2021, companies had to capitalize their research and experimental expenditures and amortize them: over five years for domestic work, and fifteen years for foreign work.
The effect was harsh for research-heavy companies. A startup that spent a million dollars on domestic engineering could deduct only a fraction of it in the first year, which created taxable income and a tax bill on cash it had already spent.
How Section 174A changed it
The 2025 fix restored expensing for domestic research.
The One Big Beautiful Bill Act enacted Section 174A in 2025. For tax years beginning after December 31, 2024, domestic research costs are immediately deductible again, or a company can elect to amortize them over no less than sixty months.
Foreign research did not get the fix. It still has to be capitalized and amortized over fifteen years, so where the work happens still changes the answer.
Related references
Section 174 is the deduction side; these cover the rest of R&D tax:
Sources
Every claim on this page traces to a primary authority. Each source below is independent and verifiable.
- 26 U.S.C. § 174, amortization of research and experimental expenditures - Cornell Law School, Legal Information Institute
- 26 U.S.C. § 174A, domestic research and experimental expenditures - Cornell Law School, Legal Information Institute
- IRS Notice 2023-63, guidance on Section 174 SRE expenditures - Internal Revenue Service
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