After weeks of debate and draft rewrites, the One Big Beautiful Bill (OBBB) was signed into law by President Trump on July 4.
This sweeping act brings big news for the tech industry on the tax front. The OBBB Act overhauls several tax rules, including a retroactive fix to Section 174 of the tax code that governs how companies deduct research and development (R&D) costs.
In short, the OBBB Act reverses a controversial 2022 change that forced businesses to spread out (amortize) their R&D deductions over several years. Now, many companies can once again expense domestic R&D costs upfront, and some can even claim back tax benefits for past years.
Below is a quick breakdown of what Section 174 is, what changed, and an explanation of how this could affect your tax bill in 2026 and beyond.
What is Section 174?
Section 174 of the US tax code covers how businesses treat their R&E expenses for tax purposes. For decades, companies could fully deduct qualifying R&D costs in the year they were incurred. This immediate write-off was intended to encourage innovation by lowering the after-tax cost of R&D investment.
However, a provision in the 2017 Tax Cuts and Jobs Act (TCJA) changed the game starting in 2022. Under that change, businesses were required to capitalize and amortize their R&D costs over a specified period of years, rather than deducting them all at once.
Specifically, beginning with tax year 2022, any US-based R&D expenses had to be written off over five years (with only a portion deductible each year), and any foreign R&D expenses over 15 years. This meant a much smaller deduction in the year the R&D money was actually spent.
Many tech companies — which typically invest heavily in software development and other R&D — saw their taxable incomes jump in 2022 as a result. Section 174 went from being a routine tax benefit to a pain point that startups and big tech firms were eager to see fixed.
Immediate changes under the OBBB Act
The One Big Beautiful Bill Act reverses much of that burden for domestic research.
For tax years beginning after December 31, 2024, companies can once again deduct 100% of their US-based R&D expenses in the year they are incurred. In other words, the five-year amortization requirement no longer applies to domestic research costs.
However, there is an important limitation. The restored immediate deduction applies only to domestic R&D. Foreign R&D expenses must still be capitalized and amortized over 15 years, consistent with the prior TCJA framework. The intent is to encourage research activity within the United States.
For tech companies with primarily US-based engineers and developers, this change effectively restores the pre-2022 treatment of R&D expenses, reducing taxable income in years of heavy innovation spending.
Retroactive relief and key considerations
In addition to the forward-looking fix, the OBBB Act provides retroactive relief for recent tax years. The availability and mechanics of that relief depend on company size.
Small businesses
Companies classified as small businesses — generally those with average annual gross receipts of $31 million or less over the prior three years — receive the most flexibility.
Eligible companies have two primary options to recover R&D deductions from tax years 2022 through 2024:
Amend prior returns (2022–2024).
Small businesses may file amended federal income tax returns for 2022, 2023, and 2024 to retroactively claim full deductions for domestic R&D expenses that were previously amortized. Doing so may result in tax refunds for those years. Amended returns must generally be filed within one year of the law’s enactment, which places the deadline in mid-2026.
Claim a catch-up deduction.
As an alternative to amending multiple returns, eligible businesses may elect to deduct any remaining undeducted domestic R&D expenses from 2022–2024 as a one-time “catch-up” deduction on their 2026 tax return, or potentially spread the deduction across 2026 and 2027, depending on the method elected. This approach achieves the same end result — fully deducting those costs — but delays the tax benefit.
Larger businesses
Companies with average annual gross receipts exceeding $31 million are not permitted to amend prior-year returns under the OBBB Act. However, they still receive partial relief.
For these businesses, the law allows accelerated deductions of previously amortized domestic R&D expenses from 2022–2024. In practice, this means that remaining unamortized balances can be deducted more quickly — generally in 2026 (or split between 2026 and 2027) — rather than continuing over the original five-year schedule. By the end of 2027, all domestic R&D costs from those years will have been fully written off.
Key dates to know
- Tax years 2022–2024. Eligible small businesses (average receipts of $31 million or less) can retroactively apply full R&D expensing to these years. That means you can amend those returns or, if preferred, use the 2025 catch-up deduction to reclaim previously amortized costs.
- July 4, 2025. The BBB Act was signed into law on this date, making the Section 174 changes official. This also starts the clock on the one-year window for filing any retroactive amended returns.
- By July 2026. Deadline for eligible small businesses to file amended 2022–2024 returns and claim refunds under the new law.
- Tax year 2026 and beyond. Immediate expensing of domestic R&D costs is fully in effect. Foreign R&D expenses remain subject to 15-year amortization.
Final thoughts
For R&D-intensive tech companies, the OBBB Act represents a meaningful reversal of one of the most disruptive tax changes in recent years. Restoring immediate expensing for domestic research improves cash flow, simplifies tax planning, and lowers the cost of continued innovation.
If your company was impacted by the Section 174 amortization rules between 2022 and 2024, 2026 is a critical year. Understanding whether you qualify to amend prior returns or elect a catch-up deduction could have a significant impact on your tax position.