Section 174 R&E Expenses Can Now Be Fully Expensed: Next Steps for Taxpayers

The One Big Beautiful Bill Act (OBBB) created IRC Section 174A, which restores current expensing for domestic research and experimental (R&E) expenditures beginning after December 31, 2024.

Foreign R&E remains capitalized and amortized over 15 years under Section 174. Procedural guidance for adopting this change was released recently through Revenue Procedure 2025-28 (the guidance).

Here’s what you need to know.

R&E Expenditures for the 2024 Tax Year

Options available to taxpayers for tax filing in 2024 depend on the taxpayer’s gross receipts and tax shelter status. A “small business taxpayer” meets the 448(c), three-year average annual gross receipts test of $31 million or less, for its first tax year beginning after December 31, 2024. All others are non-small business taxpayers.

Taxpayers who meet the small business taxpayer criteria may:

1. Continue to capitalize and amortize domestic R&E costs.
2. Elect to early adopt IRC section 174A to deduct their domestic R&E costs for 2024 on their 2024 tax filing. Choosing this option requires the taxpayer to treat reported domestic R&E expenses in tax years 2022 and 2023 (if applicable) consistently by either:
1. Amending applicable 2022 and 2023 tax filings (or filing AARs, if applicable) to deduct unamortized domestic R&E, or
2. Deducting unamortized domestic R&E from applicable 2022 and 2023 tax filings on its 2024 tax filing.

All taxpayers who have already filed an original 2024 tax return reporting domestic R&E as capitalized expenses have been granted automatic six-month relief. The guidance grants automatic superseding-return relief through the extended 2024 tax filing deadline.

Amending tax filings for the 2022–2024 tax years is only available for “small taxpayers” and must be completed before the statutory deadline or July 6, 2026.

A taxpayer who does not meet the small business test, or is a “tax shelter”, is designated as a “large taxpayer,” and must continue capitalizing and amortizing its domestic R&E expenditures on the 2024 tax filing.

R&E Expenditures Occurring After the 2024 Tax Year

For 2025 tax filings, all taxpayers must attach a statement to their tax return declaring how they will treat domestic R&E.

They may:

1. Elect to currently deduct their domestic R&E costs.
2. Elect to capitalize and amortize their domestic R&E costs.

Large taxpayers and small taxpayers that did not early adopt section 174A have three options for addressing unamortized domestic R&E from tax years 2022 through 2024 (if applicable):

1. Take a “super deduction” for recovery of unamortized domestic R&E on its 2025 tax filing. .
2. Take a “super deduction” for recovery of unamortized domestic R&E spread over its 2025 and 2026 tax filings.
3. Elect to continue amortizing unamortized domestic R&E over the historical five-year schedule.

Next Steps

The procedural methods for adopting these options can be complex and facts and circumstances specific. Therefore, it is important that taxpayers carefully consider their options.

Eide Bailly’s R&D Tax Credits and Incentives team can help you understand the changes to Section 174 expenses and available R&D tax credits.