R&D Tax Credits

What changed under the One Big Beautiful Bill Act (OBBBA) in 2025 and 2026?

The OBBBA (signed July 4, 2025) repealed mandatory Section 174 amortization for domestic R&D. Starting in 2025, businesses can deduct 100% of domestic R&D costs in the year incurred under new §174A—AND claim the R&D tax credit. Foreign R&D still requires 15-year amortization.

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Expanded Answer

How did the OBBBA change R&D tax treatment in 2025?

The One Big Beautiful Bill Act (OBBBA) introduced significant updates to R&D tax treatment starting in 2025:

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Immediate Expensing for Domestic R&D: Businesses can now fully deduct U.S.-based R&D expenses in the year they are incurred, or amortize them over at least 60 months restoring the pre-2022 flexibility. Note: Foreign R&D remains subject to 15-year amortization.

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Retroactive Refunds for Small Businesses: Companies with average annual gross receipts of $31M or less may amend their 2022–2024 tax returns to claim full R&D deductions and receive cash refunds. The deadline to act is July 6, 2026 (or earlier if the statute expires).Accelerated Deductions for Larger Companies: Businesses above the $31M threshold cannot claim retroactive refunds, but they can deduct unamortized 2022–2024 R&D expenses over 1–2 years beginning in 2025.

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For official guidance, visit: https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions

What Qualifies

Activities that commonly qualify

Developing new software features or platform capabilities

Improving performance, scalability, reliability, or security

Building internal tools or technical workflows that required experimentation

Testing different technical approaches to solve engineering challenges

What Does Not Qualify

Work that usually does not qualify

Routine bug fixes with no technical uncertainty

Visual-only updates or minor design changes

Marketing, sales, and customer support work

General maintenance that did not require experimentation

Work already solved through an off-the-shelf implementation

Example Case Study

Example of how the OBBBA impacts R&D expenses

Imagine a platform company rebuilding part of its backend to improve speed and support a larger customer base. The engineering team tests multiple database structures, adjusts the API layer, and runs repeated performance evaluations before settling on a final approach.

In that scenario, the wages tied to those technical activities may qualify. The same can be true for contractor costs and certain cloud expenses when they are directly connected to the development effort.

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Quick takeaway

If your team had to work through technical uncertainty, there is a good chance the work deserves a closer look.

Common Industry Examples

Early-stage SaaS startups building initial product versions

AI startups developing models without revenue yet

Hardware startups prototyping and testing new designs

Biotech companies conducting early-stage research

Founding teams heavily focused on product development

Curious if you are missing out on credits?

Start with a quick eligibility check. If it looks promising, we move to a light info request and one technical interview.

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