The One Big Beautiful Bill Act (OBBBA) and the R&D Tax Credit
Key Takeaways
- OBBBA was signed into law on July 4, 2025. New Section 174A restores immediate expensing for domestic R&E for tax years beginning after December 31, 2024, and the change is permanent with no sunset.
- Domestic R&D expenses are fully deductible in the year incurred. Foreign R&D remains amortized over 15 years.
- Small businesses with average annual gross receipts of $31 million or less (Section 448(c), with controlled group aggregation) can amend 2022 through 2024 returns to apply immediate expensing retroactively. The deadline is the earlier of July 6, 2026 or the Section 6511 refund statute of limitations.
- Larger businesses cannot use the small business retroactive provision but can recover the remaining unamortized 2022 through 2024 domestic balance in 2025, or split it across 2025 and 2026.
- Immediate expensing increases qualified research expenses, which can increase the Section 41 R&D credit and unlock additional refunds.
- The IRS issued procedural guidance in Rev. Proc. 2025-28 covering method changes, catch-up deductions, and late Section 280C elections for the affected years.
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. For companies that perform research and development, it is the most consequential tax change since the TCJA. OBBBA enacted new Internal Revenue Code Section 174A, which restores immediate expensing for domestic research and experimental (R&E) costs and ends the five-year amortization regime that applied from 2022 through 2024. The change is permanent, with no sunset.
For eligible small businesses, OBBBA also opens a retroactive window to amend 2022 through 2024 returns and recover tax paid under the old amortization rules. This article explains what the law changed, how it moved through Congress, who qualifies for retroactive relief, and the steps to claim it.
For the deeper mechanics of Section 174A, including catch-up options and the foreign disposition rules, see our Section 174 repeal update. For the full current rules in one place, see our Section 174.
The R&D Tax Credits landscape has shifted dramatically. Upon President Trump’s signature on the One Big Beautiful Bill Act (OBBBA), Section 174 amortization will be officially repealed, and for small businesses, the news is even better: you may be eligible for retroactive relief and immediate tax refunds, looking back to 2022. Additionally, the ability to deduct the full amount of the current year’s R&D expenses, will be made permanent.
What Section 174 Amortization Was
From 2022 through 2024, Section 174 required businesses to capitalize and amortize U.S. R&D expenses over five years, and foreign R&D over 15 years. That reduced immediate deductions and squeezed cash flow for innovative companies, locking up billions in deductions for startups and established firms alike.
In this context, R&D includes nearly all domestic software development costs, along with qualified payroll and contractor expenses. Because the amortization rule touched so many activities, its repeal is a meaningful change for a large number of small businesses, not a narrow one.
How OBBBA Moved Through Congress
OBBBA's R&D provisions took shape over several months in 2025. The path matters, because the version that became law is more generous than the early drafts, which is why the planning conversation today is about claiming the benefit rather than waiting on legislation.
- May 12, 2025: The initial House tax bill draft proposed a temporary restoration of domestic R&E expensing for 2025 through 2029, with no retroactive relief for 2022 through 2024.
- June 2025: The Senate Finance Committee proposed a stronger version: permanent immediate expensing for domestic R&E, plus retroactive relief that would let eligible small businesses amend back to 2022.
- July 1, 2025: The Senate passed OBBBA in a 51 to 50 vote, with the Vice President casting the tiebreaker. The Senate version carried the permanent expensing and the small business retroactive relief.
- July 3 to 4, 2025: The House agreed to the bill, and the President signed it into law on July 4, 2025.
What OBBBA Changed
Under OBBBA, domestic R&D expenses are fully deductible in the year incurred for tax years beginning after December 31, 2024. In practice this means four things:
- Immediate domestic R&D expensing. There is no more five-year wait for deductions.
- A retroactive amendment path for eligible small businesses to recover domestic costs capitalized in 2022 through 2024.
- A more valuable Section 41 R&D credit, because higher current deductions now pair with the credit instead of being spread over five years.
- Permanence. Section 174A carries no sunset, so immediate domestic expensing is the standing rule going forward.
Foreign R&E is unchanged. It stays on 15-year amortization for all businesses.
Who Qualifies for Retroactive Expensing?
If your business has average annual gross receipts of $31 million or less, measured under the Section 448(c) gross receipts test, you can apply Section 174A retroactively for tax years beginning after December 31, 2021, which covers 2022, 2023, and 2024.
What Retroactive Relief Means for Your Business
- Amend 2022, 2023, and 2024 returns to deduct domestic R&D expenses that were previously amortized.
- Claim refunds for income taxes paid in those years as a result of amortization. This flows to the bottom line as retained earnings and shareholder equity, and companies can restate financials to reflect the higher net income, which can improve valuation and creditworthiness.
- Make the election on time. The retroactive election must be made by the earlier of July 6, 2026 or the Section 6511 refund statute of limitations for the year.
For Larger Businesses
If your receipts exceed $31 million, you are not eligible for the small business retroactive provision. You can still recover any unamortized domestic R&D balance from 2022 through 2024, either all at once on your 2025 return or spread evenly across 2025 and 2026, whichever is more advantageous given your income picture.
Note: Foreign R&D expenses must still be amortized over 15 years for all companies.
How OBBBA Affects the Section 41 R&D Tax Credit
Restoring immediate expensing raises the value of the Section 41 R&D credit. The IRS estimates that more than 20,000 businesses claim over $20 billion in Section 41 credits each year (NSF Data), with technology, manufacturing, and life sciences accounting for the large majority of claims. With the amortization drag removed, companies that invest in domestic research are more capital efficient, and higher qualified research expenses can translate into larger credits and additional refund opportunities.
What to Do Now
The law is settled and IRS procedural guidance is available, so the work now is execution. The right steps depend on whether you meet the small business test.
If your average annual gross receipts are $31 million or less
- Review your 2022, 2023, and 2024 returns and identify all domestic R&D expenses that were amortized or should have been.
- If you amortized those expenses, you can elect to apply Section 174A retroactively and deduct them in full for each year, then file amended returns to claim the resulting refunds.
- If you expensed R&D costs rather than amortizing them while waiting for the rule to change, the new law aligns with that treatment, so you are now compliant for those years. Have the filings reviewed to confirm documentation and that you are capturing the full retroactive benefit.
- If you filed extensions or delayed filing, you can now file confidently under the immediate expensing rule.
- Make the election on time, by the earlier of July 6, 2026 or the Section 6511 statute for the year, either through amended returns or an accounting method change with a Section 481(a) adjustment.
- Confirm eligibility for the small business exception, apply the controlled group aggregation rules correctly, and coordinate the amendments to maximize refunds.
If your average annual gross receipts are above $31 million
- You cannot amend prior years solely for the Section 174 change. Instead, recover any unamortized domestic R&D balance from 2022 through 2024 by deducting it entirely on the 2025 return or spreading it across 2025 and 2026.
- If you did not amortize R&D costs for 2022 through 2024, consult your tax advisor promptly, since the retroactive provision does not apply to larger businesses and prior filings may need to be corrected.
- Review your R&D expense schedules so all unamortized balances are identified for accelerated deduction, and update tax projections and estimated payments to reflect the larger 2025 deduction.
- Consider claiming the Section 41 R&D credit for 2022 through 2024, if you have not already, to reduce the impact of the years spent amortizing.
For all businesses
- Foreign R&D costs must still be amortized over 15 years, regardless of business size.
- With larger immediate deductions, review your qualified research expenses for each year and optimize Section 41 credit claims. Higher qualified research expenses can mean larger credits and additional refunds.
- Maintain thorough records of all R&D expenses, elections, and amended filings to support your claims and streamline any IRS review.
Summary Table:
What Happens Under Each Scenario (Section 174 Repeal Scenarios)
Next Steps
- Small businesses: Act in good time to capture the retroactive refund opportunity. Review, amend, and file before the election window closes.
- Larger businesses: Prepare for a significant deduction in 2025 and make sure the accounting method change is implemented correctly.
- If you did not amortize:
- Small businesses: You are now in compliance, but double-check your documentation and take advantage of the new law.
- Large businesses: Consult your tax advisor to address any prior non-compliance.
Official Resources
Disclaimer: This article is for general informational purposes only and does not constitute tax, legal, or financial advice. The R&D tax credit involves entity-specific facts, controlled group analysis, state rules, and other variables that affect outcomes. Consult a qualified tax professional for guidance tailored to your situation.
Frequently Asked Questions
To determine eligibility, calculate your business’s average annual gross receipts for the three taxable years preceding the tax year in question, following the aggregation rules under Internal Revenue Code Section 448(c).
- For the 2022 tax year, use the average of gross receipts from 2019, 2020, and 2021.
- For the 2023 tax year, use the average from 2020, 2021, and 2022.
- Continue this pattern for subsequent years.
Be sure to aggregate gross receipts from all related businesses under common control or as part of a controlled group, as required by the Section 448(c) rules. If your calculated average is $31 million or less, your business qualifies for the small business retroactive repeal of Section 174 amortization.
Yes. The IRS requires that all members of a controlled group, affiliated service group, or businesses under common control be treated as a single employer for the gross receipts test. This means you must combine receipts from all related entities to determine if you meet the $31 million threshold.
Yes. If your business was not in existence for the entire three-year period, calculate your average annual gross receipts based on the period your business has existed. For short tax years, you must annualize your gross receipts (multiply by 12 and divide by the number of months in the short period).
Only if both the partnership or S corporation and the individual partners or shareholders meet the gross receipts test for the relevant tax year. Both levels must qualify for the small business relief to apply.
Under the new law, while immediate expensing of domestic R&D expenditures is now allowed for tax years beginning after December 31, 2024, you may still elect to amortize certain domestic research and experimental expenditures over a period of not less than 60 months, if beneficial, to preserve expenses to offset future expected taxable income. This provides flexibility for businesses that may want to spread deductions over multiple years for strategic tax planning.
The changes enacted by the OBBBA only apply to domestic research and experimental expenditures. Foreign R&D expenses must still be amortized over 15 years and do not qualify for immediate expensing under the new law.
If you are not eligible or choose not to amend prior returns, you may elect to accelerate any unamortized domestic research expenditures from earlier years. These remaining balances can be deducted either all at once in 2025 or spread evenly over 2025 and 2026, depending on your election and accounting method change. This allows you to catch up on deductions for R&D costs that were previously being amortized.
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