Section 174A and R&D Expensing in 2026: What the One Big Beautiful Bill Reversed

Under the prior law put in place by the Tax Cuts and Jobs Act, businesses had to amortize domestic research costs over a multi-year track rather than expense them in the year paid. Founders and product-heavy small businesses felt the cash-tax shift right away.

That changed with the One, Big, Beautiful Bill Act, signed into law on July 4, 2025 as Public Law 119-21.^[1] The bill created a new section 174A that restores current-year deductibility for domestic R&D.^[2] The new IRS guidance keys the change to a specific window: it covers taxable years beginning after December 31, 2024, with the expenditures deductible in the year paid or incurred.^[2]

The trigger date is the start of the taxable year. The IRS guidance states the rule for tax years beginning after December 31, 2024.^[2] For calendar-year taxpayers, that puts section 174A on the 2025 return. Fiscal-year filers measure from the start of their own tax year.

This matters because companies that began amortizing R&D under the prior framework are still sitting on multi-year amortization schedules. The interaction between those legacy schedules and section 174A is a topic of ongoing transition guidance, and founders heading into 2025 returns should expect open questions.

Some businesses prefer a smoother deduction profile. The statute gives them a path. The IRS confirms taxpayers can elect amortization over no less than 60 months, with the clock starting in the month the taxpayer first realizes benefits from the expenditures.^[3]

The 60-month election is most useful when current-year taxable income is too low to absorb the immediate deduction, or when a partnership or S corporation wants to align the deduction with revenue ramp-up in later years.

Foreign work did not get the new treatment. The IRS keeps foreign research and experimental expenditures on a 15-year amortization schedule, with the midpoint of the year of expense as the starting point.^[5]

For multinational tech teams, the contrast matters. An R&D project run by a US engineering team is now deductible in the year paid. The same work performed by a foreign contractor or offshore subsidiary lands on a 15-year amortization. Sourcing and entity choice now carry tax-cash consequences they did not have before OBBB.

The R&D fix sits inside a broader OBBB business-side deduction package. The bill also restored full first-year bonus depreciation and lifted the section 179 expensing limits. The IRS depreciation guide records the 2026 figure: for tax years beginning in 2026, the maximum section 179 expense deduction is $2,560,000.^[6]

For companies in technology and SaaS startup tax help, the section 174A relief is usually the largest line, since payroll for US-based engineers, designers, and applied researchers dominates qualifying R&D. The depreciation half of the package is covered in the Did the One Big Beautiful Bill restore 100% bonus depreciation? explainer. Modeling both pieces together, alongside any state nonconformity, is a planning conversation worth having before the year ends, not during the return.