Sec. 174 After OBBBA: Immediate Expensing of Domestic R&E Back on the Menu

The One Big Beautiful Bill Act restores immediate expensing for U.S. research and software development for tax years beginning after December 31, 2024. Foreign R&D still requires 15-year amortization. If you capitalized domestic R&D in 2022–2024, you can either deduct the entire remaining amount in your first tax year beginning after 12/31/2024 or spread the catch-up over two years. Many smaller businesses (meeting the §448(c) receipts test) may also elect retroactive expensing back to years beginning after 12/31/2021—creating potential refund opportunities. Coordination with the R&D credit (§41/§280C) and the EBITDA-based §163(j) interest limit will influence the best choice for each company.

The AICPA has recently provided recommendations to the IRS. The point out that without additional guidance many taxpayers are left confused. The AICPA recommends immediate expensing on original 2024 returns (which for calendar year C-Corporations that were properly extended will be due in approximately 2 months on 10/15/2025). They also suggested a retroactive application of immediate domestic R&E expensing for 2022 and 2023, stating taxpayers should be allowed to amend prior returns or elect to file an accounting method change for its first tax year starting after 12/31/2024 (allowing deduction of 2022 and 2023 costs). Finally, and what feels like the logical thing to do, the AICAP suggests an option for taxpayers posting a net operating loss (NOL) in previous filings to make an adjustment to the NOL carryforward year(s) instead of amending the entire return.

For AI companies this change lets you expense qualifying U.S. (domestic) research work tied to model development and software—think experimentation, training iterations, data engineering, and MLOps work that meets §174’s definition. The big swing is cash: expensing 2025+ domestic efforts while also taking a one-year or two-year catch-up for 2022–2024 can materially reduce near-term tax. Two cautions: foreign research stays on a 15-year schedule for tax (same as before OBBBA), and not all “data costs” are equal—some collection/labeling and compute tied directly to R&D may qualify, while data acquisition or production-ops spend often won’t. We’ll map your projects and logs to the tax rules so you’re taking what you can—and only what you should.

SaaS companies can expect feature builds, refactors, platform reliability, and developer tooling that meet §174 can be expensed for U.S. work going forward, simplifying life after a few painful years of capitalization. You’ll still want clean separation between R&D and routine maintenance, plus a bridge from book treatment to tax (since financials may capitalize differently). Like the AI and Crytpo space, choosing between a one-year or two-year catch-up for your 2022–2024 domestic costs depend on cash needs, credit optimization, and state conformity. Done right, this can free cash for hiring and GTM while keeping your audit trail tidy.

The Crypto and Web3 space will also be taking advantage of these changes. Core client/protocol work, smart-contract development, wallets, and related software R&D performed in the U.S. can be expensed again under §174A, improving cash for teams building infrastructure and applications. Keep development clearly separated from non-R&D activities (token issuance, staking operations, market-making, or community programs), and be strict about cross-border work—foreign research still amortizes over 15 years. Documentation matters here: link epics/sprints and repos to qualifying activities so your deduction is defensible alongside any R&D credit claim.

So how can Norling Tax & Accounting help you?

The time to plan and prepare is today. While tax pros will need to keep their ears perked for guidance, the ball is ultimately in the IRS' court. Contact me today to learn more about how to move forward with claiming and maximizing the R&D Tax Credit and Sec. 174 Capitalized Costs under the new tax legislation.