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The OBBBA (signed July 4, 2025) repealed mandatory Section 174 amortization for domestic R&D. Starting in 2025, businesses can deduct 100% of domestic R&D costs in the year incurred under new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

A growing tech company spent heavily on product development between 2022 and 2024 but was required to amortize those costs under prior tax rules. With the changes introduced under the OBBBA, the company can now revisit those years and potentially recover cash through amended returns if it qualifies as a small business.

At the same time, the company can immediately expense new domestic R&D costs starting in 2025, improving cash flow and making ongoing development more financially efficient.

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

Tech companies with heavy R&D spend between 2022 and 2024

Startups now eligible for retroactive refunds under new thresholds

Larger companies accelerating previously amortized R&D expenses

Businesses shifting to immediate expensing for domestic R&D

Companies with mixed domestic and foreign R&D cost structures

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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