Introduced in the U.S. House of Representatives on March 10, 2025, by Representatives Ron Estes (R-KS) and John Larson (D-CT), the American Innovation and R&D Competitiveness Act of 2025 is a bipartisan legislative proposal aimed at reinstating the immediate deductibility of research and experimental (R&E) expenditures for U.S. businesses. The Bill seeks to amend Section 174 of the Internal Revenue Code, reversing changes implemented under the 2017 Tax Cuts and Jobs Act (TCJA).
Background: Changes Under the TCJA
Prior to the enactment of the TCJA, businesses were permitted to fully deduct their R&E expenses in the same year they were incurred, providing a direct incentive for companies to invest in innovation. However, the TCJA introduced a significant shift in this policy. Starting in 2022, the TCJA mandated that these expenses be amortized over five years for domestic research and 15 years for foreign research.
Provisions of the 2025 Act
The American Innovation and R&D Competitiveness Act of 2025 aims to restore the pre-TCJA treatment of R&E expenditures, with the following key provisions:
- The Bill proposes that taxpayers may elect to treat research or experimental expenditures paid or incurred during the taxable year as expenses not chargeable to capital account, thereby allowing these expenditures to be fully deductible in the year they are incurred.
- Taxpayers may also elect which expenses they wish to amortize over at least 60 months.
- The Bill does not apply to expenditures tied to the acquisition of land, property improvements or resource exploration, e.g., mining, oil, gas, etc.
- The Bill includes appropriate changes to Section 280C so as to avoid duplicate tax benefits for businesses who plan to claim R&D credits.
- The Bill has retroactive application to tax years beginning after Dec. 31, 2021, which would reverse TCJA’s prior amortization requirement.
The proposed reinstatement of immediate R&D expensing is viewed by many industry leaders as a critical step toward maintaining and enhancing the United States’ competitive edge in global markets. Proponents of the Bill have stated that reinstating immediate R&D expensing will not only incentivize innovation but also stimulate economic growth by encouraging companies to invest more heavily in research and development. This, in turn, is expected to lead to job creation, technological advancements and an overall strengthening of the U.S. economy.
While the Bill has bipartisan support and backing from various industry groups, its ultimate success will depend on passing through all parts of the legislative process. For questions or more information about how these changes can impact you and your business, contact your Windham Brannon advisor today, or reach out to Nicole Suk.
