One of the most talked-about updates to the One Big Beautiful Bill Act (OBBBA) is Section 174, which governs research and experimentation (R&E) expenses. Accounting Today reports that the new rule allows taxpayers to immediately deduct domestic R&E costs rather than capitalizing and amortizing them over several years, as required under the Tax Cuts and Jobs Act. Foreign R&E expenses must still be amortized.  

“The new act is now providing taxpayers the opportunity to deduct domestic R&E expenses…this really just opens the door wide for tax planning rather than simply tell our clients that they can go ahead and deduct all these expenses. We’re telling them to go ahead through a modeling exercise,” said Caitlin Slezak, principal at Baker Tilly.  

The choice between deducting and capitalizing domestic R&E costs can affect other tax areas, including the business interest expense limitation under Section 163(j). For taxpayers who are already limited in how much interest expense they can deduct, continuing to capitalize R&E costs may  produce a better result once amortization is added back to the 163(j) calculation in 2025.  

The new rule also interacts with foreign provisions like BEAT and FDII, making the analysis more complex for multinational taxpayers. Those who elect to accelerate unamortized domestic R&E from 2022 through 2024 over two years can continue amortizing those costs afterward.  

“While we’re excited that we have this opportunity, there are a lot of pieces to this puzzle,” Slezak said.