Short answer. Section 174A, enacted by the One Big Beautiful Bill Act in 2025, lets a company immediately deduct its domestic research and experimental costs again, reversing the five-year capitalization that applied from 2022. It is the deduction side of R&D tax, separate from the Section 41 credit, and most companies claim both.
What Section 174A changed
The rule flipped from capitalize-and-amortize back to immediate expensing for domestic work.
From 2022 through 2024, a TCJA change required capitalizing domestic research and experimental costs and amortizing them over five years. Companies paid tax on research dollars in the year they spent them, which hit cash-strapped startups hardest.
Section 174A(a) restores the choice. For tax years beginning after December 31, 2024, you can deduct domestic research costs in the year you incur them, or elect to capitalize and amortize them over no less than 60 months.
Foreign research is unchanged. It still has to be capitalized and amortized over 15 years, so where the work happens still matters.
The 2022 to 2024 transition relief
The act did not leave the capitalized costs stranded.
Companies can recover the domestic research they were forced to capitalize from 2022 through 2024 by deducting the remaining unamortized balance, with faster relief available to eligible small businesses.
The mechanics of the catch-up depend on the company's size and which years are still open, which is a question for your CPA. The point is that the cost is recoverable, not lost.
Section 174A versus the Section 41 credit
Two different mechanisms, and most R&D companies use both.
Section 174A is a deduction: it decides when you write the research cost off against income. Section 41 is a credit: a direct reduction of tax for increasing research activity. One lowers taxable income; the other lowers the tax bill itself.
They work together, but a coordination rule keeps you from taking the full deduction and the full credit on the very same dollars. Your CPA makes that election; the binder gives them the Section 41 evidence to make it well.
Related references
Section 174A is the deduction side; these cover the Section 41 credit it sits beside:
Sources
Every claim on this page traces to a primary authority. Each source below is independent and verifiable.
- 26 U.S.C. § 174A, domestic research and experimental expenditures - Cornell Law School, Legal Information Institute
- 26 U.S.C. § 41, credit for increasing research activities - Cornell Law School, Legal Information Institute
- IRS, One Big Beautiful Bill provisions - Internal Revenue Service
Get documentation built to survive an exam
R&D Binder documents the Section 41 credit side: the business components, the four-part test, and the QRE workpaper. Your CPA handles the Section 174A deduction and how the two fit together on the return.