On May 12, 2025, the House Ways and Means Committee released updated text on the proposed tax legislation for “The One, Big, Beautiful Bill.” Many substantive changes have been proposed, including amendments to Section 174. As amended by the Tax Cuts and Jobs Act of 2017 (TCJA), Section 174 currently requires amortization of domestic research and experimental (R&E) expenditures over a five-year period. The proposed legislation aims to reverse the mandatory five-year amortization requirement and amend Section 174 to allow immediate expensing of R&E expenses. This change is intended to provide financial flexibility for businesses investing in innovation, fostering technological advancements, job creation and long-term economic growth. The bill also includes provisions for optional amortization, exclusions for certain expenditures and adjustments to tax credits.

Below are some of the key changes proposed by the updated language as they relate to Section 174.

Key Points of the Proposed Legislation

Suspension of Amortization

• New Subsection (e): Section 174(e) would be amended to suspend the required application of amortization for domestic research and experimental expenditures for taxable years beginning after December 31, 2024, and before January 1, 2030.

Reinstatement of Expensing

• New Section 174A: Introduces temporary rules allowing immediate deduction of domestic research and experimental expenditures paid or incurred during the taxable year, overriding the previous requirement to capitalize and amortize these costs, for tax years beginning after December 31, 2024 and before January 1, 2030.

Definition of Domestic Research or Experimental Expenditures

• Expenditures must be related to the taxpayer’s trade or business and not attributable to foreign research.

Optional Amortization

• Taxpayers would still have the option to elect to amortize certain domestic research and experimental expenditures over a period of not less than 60 months, starting from the midpoint of the taxable year in which the expenditures are paid or incurred.

Termination

• The provisions will not apply to amounts paid or incurred in taxable years beginning after December 31, 2029.
• The change in method of accounting due to the termination will be treated as initiated by the taxpayer and made with the consent of the Secretary.

Coordination with Section 280C

• Adjustments to Section 280C have been proposed to ensure that businesses claiming R&D tax credits can elect a reduced credit so not to duplicate tax benefits.

Insights

Procedurally, the legislation has a long way to go before being presented to the House floor, the Senate and ultimately the President for signature into law; unforeseen things can happen between now and the finalization of any bill passed into law. It is also important to note that these changes, if effectuated as they currently stand, are only temporary in nature, and should they pass, the temporary nature would put taxpayers in a similar position of holding their breath in six years. However, the addition of proposed changes to Section 174 is welcomed news for companies and taxpayers that rely on or engage in innovation to enhance their businesses. The change to amortization, although just a timing difference, has had a direct and measurable impact on the cash flow positions of taxpayers affected.  Immediate expensing will allow more taxpayers to comfortably reinvest in research and development, thus strengthening the US economy.

This page will continue to be updated as more information becomes available. You can read the bill in its entirety here.

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