TL;DR
- Domestic R&D can once again be deducted immediately. New Section 174A permanently restores immediate expensing for U.S.-based R&D costs beginning with the 2025 tax year.
- Foreign R&D rules did not change. Research performed outside the U.S. must still be capitalized and amortized over 15 years, making proper cost allocation more important than ever.
- Many companies still have planning decisions to make. Businesses may need to evaluate catch-up deductions for prior-year domestic R&D, determine the best Section 280C election, and prepare for expanded Form 6765 reporting.
- Documentation requirements are increasing. Form 6765 Section G is optional for tax year 2025 and mandatory for tax year 2026 and beyond. Treat 2025 as your dry run.
The R&D Landscape: What Actually Changed in 2025 and 2026
If you’ve been asking whether you can deduct R&D expenses again in 2026, or whether the R&D amortization rule was repealed, the short answer is yes (for domestic research). Here is what changed and why it matters.
For tax years 2022 through 2024, the Tax Cuts and Jobs Act forced companies to capitalize their R&D costs and deduct them slowly over five years for domestic work and 15 years for foreign work. For R&D-heavy companies, that created a painful mismatch: you spent the cash in the year you did the work, but you could only deduct a fraction of it, which inflated taxable income and, in many cases, generated real tax on companies that had little or no book profit.
The One Big Beautiful Bill Act corrected this for domestic R&D.
Under new Section 174A, domestic R&E (research & experimentation) costs paid or incurred in tax years beginning after December 31, 2024 can once again be deducted in full in the year incurred. This isn’t a temporary provision set to expire; it restores the pre-2017 treatment on a permanent basis. Software development performed domestically is included as R&E eligible for immediate expensing, which is a meaningful point for technology and manufacturing companies that build their own systems.
What did not change is the treatment of foreign R&E.
Research conducted outside the United States remains subject to 15-year amortization under the original Section 174. For any company running development work across borders, or using offshore contractors, the domestic-versus-foreign line is now one of the most important distinctions on the return, because the two are treated completely differently.
The Decisions Companies Still Have to Make
The headlines last year focused on a single deadline. The more useful question now is what decisions are still open, because several are, and they carry real dollars.
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For Larger Companies: How to Recover the 2022 to 2024 Balance
If your company had average annual gross receipts above $31 million, you couldn’t amend prior-year returns to apply Section 174A retroactively. But you’re not stuck. You can elect to deduct the remaining unamortized domestic R&E costs from 2022 through 2024 either entirely on your 2025 return or ratably across 2025 and 2026. You can also choose to keep amortizing. Which path is best is a modeling exercise, not a default, and it depends on your projected taxable income, your net operating loss position, and present-value considerations. Accelerating deductions is often attractive, but not always, particularly where post-2017 NOLs are already limited to offsetting 80% of taxable income.
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Whether to Expense or Elect to Amortize Going Forward
Section 174A lets you deduct domestic R&E immediately, but it also lets you elect to capitalize and amortize those costs over a period of not less than 60 months. Most companies will prefer immediate expensing for the cash-flow benefit, but the amortization election exists for a reason and can make sense in specific situations, such as managing the interaction with other limitations or smoothing income across years.
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The Section 280C Reduced-Credit Decision
This is the one that quietly trips up companies now that immediate expensing is back. Section 280C(c) prevents a double benefit: you generally cannot both deduct the full R&D cost and claim the full R&D credit on the same dollars without an adjustment. You have two options. You can take the full credit and add the corresponding amount back to taxable income, or you can elect the reduced credit under Section 280C(c)(2), which is approximately 79% of the gross credit at the 21% corporate rate but preserves your full deduction with no add-back.
At the top corporate rate, the reduced-credit election usually comes out ahead. But there is an important exception: for pre-revenue startups using the Section 41(h) payroll tax offset, the reduced credit can be the wrong choice, because the 21% reduction is real cash given up while the deduction add-back has no immediate effect when there is no taxable income to add it back to. State conformity varies as well, and some states do not follow the federal election, so the analysis has to run federal and state together.
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Preparing for Form 6765 Section G
Separate from the 174A changes, the documentation bar for the R&D credit itself is rising. Form 6765 Section G, which requires business-component-level and project-level detail about your qualified research activities, is optional for tax year 2025 and mandatory for 2026 and beyond. The practical implication is that 2025 is the year to build and test your documentation process, so that when Section G becomes mandatory you are not scrambling to reconstruct project-level detail after the fact.
Why This Is Harder Than It Looks
On the surface, “you can deduct R&D again” sounds like pure simplification. In practice, 2026 is one of the more complex R&D tax years in recent memory, because several moving parts interact:
- The domestic-versus-foreign split determines whether costs are expensed immediately or amortized over 15 years, and mixed teams require careful allocation.
- The catch-up decision for 2022 to 2024 balances interacts with NOLs, income projections, and present value.
- The Section 280C election interacts with the R&D credit, the payroll offset, and state conformity, and the right answer differs by company.
- The Section G documentation requirement raises the substantiation standard for the credit at the same time.
- Qualified research expenses for the credit are still determined by Section 41 rules, which are separate from what qualifies as R&E under Section 174A, so the two definitions have to be reconciled rather than assumed to be the same.
None of these are insurmountable. But they are the kind of interacting elections where a reasonable-looking default in one place quietly creates a worse outcome in another. This is precisely the sort of analysis where getting the modeling right, and reconciling the federal and state treatment, changes the actual dollars recovered.
What to do next:
Determine Your Eligibility
Using the Section 448(c) gross-receipts test with controlled-group aggregation, because that determines which options are even available to you.
Model Your Catch-Up Strategy
If you're above the threshold, compare deducting your remaining 2022-2024 domestic R&E costs in 2025, spreading them over 2025 and 2026, or continuing amortization.
Separate Domestic & Foreign R&D
Review your R&D activities and contractor arrangements to ensure domestic and foreign costs are properly identified and allocated.
Prepare for Form 6765 Section G
Use 2025 to establish project-level documentation so you're ready when the expanded reporting requirements become mandatory in 2026.
Global Expansion
Fifth, use 2025 as a dry run for Form 6765 Section G, building business-component-level documentation now so the 2026 mandatory requirement is a formality rather than a fire drill.
FAQs
Yes, for domestic research. Under new Section 174A, domestic research and experimental costs can be deducted in full in the year they are incurred, for tax years beginning after December 31, 2024. This reverses the Tax Cuts and Jobs Act rule that required capitalizing and amortizing those costs over five years. Research performed outside the United States must still be amortized over 15 years.
It’s permanent. The One Big Beautiful Bill Act restored immediate expensing for domestic R&D on a permanent basis, not as a temporary provision with a sunset date.
Yes. Eligible small businesses with average annual gross receipts of $31 million or less could amend their 2022 through 2024 returns to apply Section 174A retroactively, but that election had to be made by July 6, 2026, or the refund statute of limitations. That window has closed.
Companies above the threshold never had the amend option, but can still choose how to recover their remaining unamortized 2022 through 2024 balance.
Yes, and the two are used together. You can claim the Section 41 R&D credit alongside the Section 174A deduction. Because immediate expensing is back, the Section 280C rules again require a choice: take the full credit and add an amount back to income, or elect the reduced credit (roughly 79% of the gross credit at the 21% corporate rate) and keep the full deduction. The right choice depends on your situation, and it can differ for pre-revenue companies using the payroll tax offset.
Section G of Form 6765 requires business-component-level and project-level detail about your qualified research activities. It is optional for tax year 2025 and mandatory for tax year 2026 and beyond. The practical takeaway is to use 2025 to build and test your documentation process before the requirement becomes mandatory.
Qualifying activities are defined by the Section 41 four-part test: a permitted purpose, technological in nature, elimination of technical uncertainty, and a process of experimentation. Note that what qualifies as a research expense for the Section 41 credit is determined separately from what qualifies for Section 174A expensing, so the two need to be reconciled rather than assumed identical.
How Royse Partners Approaches This
Royse Partners works exclusively in specialty tax incentives, with a delivery team led by engineers who understand the underlying technical work, not just the tax forms. For the 2026 R&D tax landscape specifically, that means modeling the catch-up and Section 280C decisions against your actual numbers, reconciling the Section 41 credit with the Section 174A deduction, keeping the domestic and foreign treatment straight, and building Section G-ready documentation from the start.
If you are working through any of these decisions for your 2025 return or your 2026 planning, we are happy to walk through your specific situation. Contact us today to set up a time to chat.
This article is general information, not tax advice. The rules described here interact in ways that depend on your entity type, gross receipts, income position, and the specifics of your research activities. Confirm the current rules and your own facts with a qualified advisor before acting. Contact Royse Partners for a complimentary assessment of your situation.