On May 14, 2025, the House Ways and Means Committee advanced its version of the “One, Big, Beautiful Bill.” The bill includes an extension of full expensing for research and development (R&D) costs through 2029. This reverses a controversial change that required companies to amortize domestic R&D expenses over five years. While previous bills called for a retroactive repeal of this code section back to 2022, the current House bill aims to eliminate the domestic R&D capitalization requirement beginning after 2024. Foreign source R&D would still be subject to the 15-year capitalization period.
The Senate Finance Committee has released its version of the bill, which also addresses a change to the current R&D capitalization requirement. The Senate bill is similar to the House bill in that it would restore immediate expensing for all domestic R&D beginning after Dec. 31, 2024. Foreign R&D expenses would still be amortized over 15 years. However, the Senate bill differs from the House bill in two significant ways:
- The ability to deduct domestic R&D would be permanent and not expire after 2029.
- Provides retroactive small business relief. Companies that meet the gross receipts test, generally $31 million or less, would be allowed to apply the new expensing rule retroactively, all the way back to the 2022 tax year.
To take advantage of the small business relief, the business must make an election within one year of the bill’s enactment date and file amended tax returns for any applicable tax years. This would allow the company to reclaim the taxes paid on previously capitalized R&D expenses.
Without the small business relief, all other taxpayers that capitalized R&D expenses after Dec. 31, 2021, and before Jan. 1, 2025, would have the option to deduct any remaining unamortized R&D in full in the first tax year after 2024 or spread it evenly over two years.
Regardless of which bill passes under reconciliation and is enacted into law, there is finally hope for a fix on this controversial change that has drawn criticism from both the technology and manufacturing sectors. For questions or more information, contact your Windham Brannon tax advisor today, or reach out to Nicole Suk.
