The One Big Beautiful Bill Breakdown: Research and Development Expenditures
The One Big Beautiful Bill reinstates significant deductions for businesses investing in research and development (R&D)—a change that has been highly anticipated by many taxpayers.
The Previous Tax Law
Before the Tax Cuts and Jobs Act of 2017 (TCJA), IRC Section 174 allowed taxpayers to choose to either:
- Immediately deduct all reasonable expenditures connected to R&D; or
- Capitalize and amortize these expenditures over a period of at least 60 months.
Beginning in tax years starting after December 31, 2021, the TCJA revoked the choice, requiring taxpayers to capitalize the applicable R&D expenditures and amortize them over a period of 60 months (for domestic expenses) or 180 months (for foreign expenses).
New and Final Law Under the One Big Beautiful Bill
The One Big Beautiful Bill creates a new IRC Code Section, IRC Section 174A, which permanently restores the Pre-TCJA rules for domestic R&D expenditures only. This means that taxpayers can once again immediately deduct all reasonable domestic R&D expenditures, unless they choose to capitalize and amortize the expenditures over a period of at least 60 months.
IRC Code Section 174A applies to tax years beginning after December 31, 2024. However, the One Big Beautiful Bill includes an election for eligible small businesses (those with less than $31 million in average annual gross receipts over the past three tax years), which allows them to amend tax returns for tax years beginning after December 31, 2021, to immediately expense any previously capitalized R&D expenditure within one year of the bill’s enactment.
In addition to the relief provided through the option to elect retroactive application, the One Big Beautiful Bill contains another election to deduct unamortized domestic R&D expenditures in either the first taxable year beginning after December 31, 2024, or ratably over the two taxable years beginning after December 31, 2024.
The One Big Beautiful Bill also amends IRC Code Section 174 by making the TCJA law related to foreign R&D expenditures permanent. Businesses are still required to capitalize and amortize R&D expenditures made in foreign countries over a period of 180 months.
Since the bill was passed, the IRS has issued Revenue Procedure 2025-28, which provides clarifying guidance for how to apply the new rules. For 2025, you can elect your R&D deduction method by attaching a short statement to your return (no Form 3115 required). Small businesses planning to apply the rules retroactively must do so by July 6, 2026. If you’ve already filed your 2024 return, you can supersede it by November 15, 2025.
What It Means for You
The ability to elect to apply the new rules retroactively or to deduct unamortized portions of R&D expenses from previous tax years is a great opportunity, but it’s essential to discuss this strategy with your tax advisor. There is also potential for tax savings in businesses ensuring that R&D dollars are spent domestically.
To learn more about how the One Big Beautiful Bill and this specific provision may impact you, contact your Warren Averett advisor.
This article was originally published on July 21, 2025, and most recently updated on September 19, 2025.
