On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. We’ve previously shared some of the biggest tax law changes affecting our clients. In this article we will dive deeper into the changes to research and experimental expenditures.
The term research & experimental expenditures generally includes all costs incurred in the development or improvement of a product or process associated with a taxpayer’s trade or business, including software.
Research and experimental expenditure tax treatment BEFORE OBBBA:
For tax years beginning after 12/31/2021 and ending before 12/31/2024, taxpayers were required to amortize research & experimental expenditures ratably over a five-year period (15-year period for expenditures attributable to foreign research).
Tax treatment Under OBBBA
Under the OBBBA, taxpayers are allowed to immediately deduct domestic research and experimental expenditures incurred in tax years beginning January 1, 2025 or later. (Foreign research and experimental expenditures must continue to be amortized over 15 years)
Although no longer required, the option to amortize domestic research and experimental expenditures under pre-OBBBA terms remains intact. The election to do so must be made by the return due date (including extensions), and applies to all subsequent years thereafter. Some exceptions apply to certain types of expenditures.
Applying OBBBA Law Retroactively
Taxpayers with average annual gross receipts of $31 million or less (in the first tax year beginning after December 31, 2024) may retroactively elect to apply the expensing rules under OBBBA provisions to tax years beginning 1/1/2022 or later (when no such expensing rules were previously allowed). The election must be made by July 4, 2026. Note – this requires filing amended returns for tax years impacted by the election.
If your business was amortizing research and experimental costs under pre-OBBBA law, this provision will allow you to retroactively expense those same costs in the year they were incurred, rather than amortize them.
Acceleration provision alternative
As an alternative to retroactive amendment described above, taxpayers that incurred domestic research and experimental expenditures between 1/1/2022 – 12/31/2024 may elect to accelerate the remaining unamortized cost for such expenditures over a one-year or two-year period.
Please contact us to determine if these changes affect your unique tax situation and learn how you can benefit from the changes!
