The 2025 tax bill draft, released on May 12, 2025, promises major relief for companies performing research and development (R&D) by reversing the Section 174 amortization requirement for domestic R&D expenses. This change is especially helpful to small and medium-sized businesses performing significant R&D by giving them back the option to deduct their domestic R&D expenses in the current year, or alternatively amortize them over five or ten years.While this is a win for businesses, questions linger about retroactive relief for 2022–2024 and whether the 2021 statute of limitations will apply. At StrikeTax, we’re unpacking what this means for your tax strategy. Here’s the breakdown.
What Is Section 174 Amortization?
Since the 2017 Tax Cuts and Jobs Act (TCJA), Section 174 has required businesses to amortize all R&D (research and experimental) costs, ending immediate expensing:
- Domestic R&D costs: Spread over five years.
- Foreign R&D costs: Spread over 15 years.
This change, effective from Jan 1, 2022, has strained cash flow and complicated tax planning for R&D-driven companies.
Proposed Changes in the 2025 Tax Bill
The 2025 tax bill draft offers a temporary Section 174 repeal for domestic R&D costs:
- Immediate Expensing: From Jan 1, 2025 through calendar year 2029, provides the taxpayer with the option to deduct domestic R&D costs in the year incurred.
- Foreign R&D Expensing Unchanged: Still required to be amortized over 15 years.
- Section 280C Adjustment: Prevents double-dipping on tax credits, by decreasing the deductible expenses by the amount of any credits received.
- No Retroactivity: The current draft excludes relief for 2022–2024, disappointing some businesses that hoped to amend and recapture their amortized expenses in the affected tax years, to generate refunds and free up cash.
These changes aim to boost R&D tax relief but pressure remains on global firms with offshore R&D expenses and those hoping for retroactive relief.
How Does This Affect Your Tax Filings?
2024 Tax Year (Filed in 2025)
The 2025 tax bill doesn’t apply to 2024, so Section 174 amortization rules remain:
- Domestic R&D Expenses: Amortize over five years.
- Foreign R&D Expenses: Amortize over 15 years.
- Impact: Reduced R&D deductions may increase taxable income, affecting cash flow.
Work with a Strike Advisory to optimize your 2024 filings by maximizing your available R&D tax credits.
2025 Tax Year (Filed in 2026)
If the bill passes, 2025 brings R&D tax relief:
- Domestic R&D Expenses: Deduct immediately, simplifying tax credits and boosting cash flow.
- Foreign R&D Expenses: Continue 15-year amortization.
- Future Outlook: Expensing ends on December 31st, 2029 unless extended, so plan for 2030.
This could transform tax strategies for R&D-intensive businesses, in that it will potentially make more sense to invest in R&D prior to 2030, if a further extension isn’t granted before then.
When Will the 2025 Tax Bill Pass?
The 2025 tax bill is on a fast track but faces challenges:
- May 13, 2025: House Ways and Means Committee vote.
- May 22, 2025: The House passed the bill with a vote of 220-213
- Summer–Fall 2025: Senate process may extend to August or September, with a September 30 reconciliation deadline.
- Complications: The mid-July 2025 debt limit deadline could delay progress.
Expect passage by July–September 2025, but stay updated via Strike Advisory’s blog and newsletter subscription.
Hoping for Retroactive Relief from 2022?
Many businesses want retroactive R&D relief for 2022–2024, when Section 174 amortization began. The current draft excludes this, but here’s what to do:
- Comply Now: Amortize R&D costs for 2022–2024 to avoid penalties, if you haven’t already
- Take Federal and State R&D Tax Credits: Maximize your tax credits for 2022-2024 to minimize the impact of lost deductions on cash flow
- Track Legislation: Watch for retroactivity amendments during 2025 tax bill negotiations.
- Prepare Records: Keep R&D expense data ready for amended returns if relief is granted.
- Consult Experts: Consult your CPA and Strike Advisory to estimate the R&D tax credits available to your business.
2021 Statute of Limitations: No Amortization Concerns
In 2021 (and prior years), Section 174 allowed immediate R&D expensing, as the amortization requirement began in 2022. The statute of limitations for 2021 returns is nearing:
- Standard Deadline: Three years from filing, e.g.April 15, 2025, for April 15, 2022, filers.
- Extended Filers: October 15, 2025, for October 15, 2022, filings.
- Action Steps:
- Verify 2021 R&E deductions were claimed correctly.
- Amend returns before deadlines for R&D tax credits or other adjustments.
- Contact your CPA to confirm compliance.
No amortization applies to 2021, but act fast to address other tax issues.
Plan Your Next Steps with StrikeTax
The 2025 tax bill draft ignites R&D tax relief by pausing Section 174 amortization, but gaps remain for retroactivity and foreign R&E. Here’s your action plan:
- 2024 Filings: Amortize R&D costs and optimize with R&D tax credits..
- 2025 and Beyond: Prepare for full domestic R&E expensing, but plan for foreign amortization.
- Retroactivity: Keep records ready for 2022–2024 amendments.
- 2021 Deadlines: Finalize amendments before the statute of limitations expires.
Ready to navigate these changes? Contact Strike Advisory for tailored tax strategies to maximize your R&D tax credits.
Disclaimer: The 2025 tax bill is a draft, and provisions may change. Consult a qualified tax professional for personalized advice. This article is the opinion of Strike Advisory and not tax advice.
