Which Section 174 statements are now outdated after OBBBA?
Several statements that were accurate under the TCJA (2022–2024) are now wrong for tax years beginning after 2024. Domestic R&E is no longer required to be capitalized and amortized over five years — under new §174A it is immediately deductible by default. There is no longer a mandatory midpoint (half-year) convention for domestic costs, capitalization is not the only option, and you do not need Form 3115 to change methods (a statement under Rev. Proc. 2025-28 suffices).
Foreign R&E, however, still must be amortized over 15 years. If your filings, templates, or advisory content still describe mandatory domestic capitalization, they should be updated to reflect the post-OBBBA §174A framework.
On This Page
Overview: What Changed Under the OBBBA
| Topic | Under TCJA (2022–2024) | Under OBBBA (2025+) |
|---|---|---|
| Domestic R&D Treatment | Capitalize & amortize over 5 years | Fully deductible in year incurred (new §174A) |
| Foreign R&D Treatment | 15-year amortization | Still 15-year amortization (unchanged) |
| Prior Unamortized Costs (2022–2024) | No relief — continue amortizing | Catch-up deduction: all in 2025, or split 2025–2026 |
| Small Business Retroactive Relief (≤$31M avg. gross receipts) | Not available | May amend 2022–2024 returns to fully deduct; deadline July 4, 2026 |
| Form 3115 Requirement | Required (or statement per Rev. Proc. 2023-08) | Not required — attach statement per Rev. Proc. 2025-28 |
| §280C Reduced Credit Election | Must be on original return; not retroactive | Eligible small businesses may make retroactively — deadline July 4, 2026 |
Identified Issues & Corrected Language
The following items were accurate under the TCJA but are now outdated or misleading following the OBBBA. Corrected replacement language is provided for each.
Outdated Statement
"Section 174 will directly impact 100% of taxpayers." [Implies ongoing capitalization requirement for all taxpayers going forward]
Why It's Wrong
This statement was accurate under TCJA but is now misleading. Starting with tax years after December 31, 2024, Section 174 capitalization is no longer required for domestic R&D. The OBBBA enacted new §174A, which restores immediate expensing for domestic costs. The broad '100% of taxpayers' framing no longer applies in the same way.
✓ Updated Language
For tax years beginning after December 31, 2024, the OBBBA (P.L. 119-21) enacted new IRC Section 174A, which reinstates full immediate expensing of domestic R&D costs. Section 174 capitalization is no longer required for domestic expenditures. All taxpayers with previously capitalized domestic R&D costs from 2022–2024 may also be eligible for a catch-up deduction.
Notes
The Section 174 capitalization requirement is still relevant for any 2024 and prior year returns not yet filed or amended, but should no longer be presented as an ongoing requirement going forward.
Outdated Statement
"You and your tax preparer will need to work together to establish an appropriate methodology to identify and capitalize and amortize §174 R&E expenditures."
Why It's Wrong
The instruction to 'capitalize and amortize §174 R&E expenditures' is outdated for tax years beginning after December 31, 2024. Under the OBBBA, domestic R&E expenditures are now fully deductible in the year incurred via §174A — no capitalization or amortization is required.
✓ Updated Language
For tax years beginning after December 31, 2024: You and your tax preparer will work together to identify all §174A R&E expenditures, which may now be fully deducted in the year incurred. The definition of qualifying costs remains broad (broader than §41 QREs), including overhead and indirect costs. Capitalization and amortization are no longer required for domestic R&E costs.
Notes
For 2024 tax year returns not yet filed as of early 2026, the capitalization requirement still applies. Clients should confirm with their CPA which tax year is being addressed.
Outdated Statement
"A statement attached to the federal tax return indicating §174 compliance for Tax Year 2024 will allow taxpayers to not file Form 3115."
Why It's Wrong
While accurate per Rev. Proc. 2023-08 for Tax Year 2024, the guidance landscape has changed. The IRS issued Rev. Proc. 2025-28 to govern the OBBBA transition. For 2025 forward, taxpayers using the catch-up deduction for unamortized 2022–2024 costs also attach a statement instead of filing Form 3115 — but this is a different mechanism under different guidance.
✓ Updated Language
For Tax Year 2024: A statement in lieu of Form 3115 (per Rev. Proc. 2023-08) is still applicable if making the accounting method change for the first time. For Tax Year 2025 and forward: Under the OBBBA and Rev. Proc. 2025-28, a statement attached to the return is also sufficient to elect catch-up treatment of prior unamortized costs — Form 3115 is not required.
Notes
Update references from Rev. Proc. 2023-08 to also include Rev. Proc. 2025-28 where applicable. The two procedures apply to different years and different elections.
Outdated Statement
"Prepare amortization schedule to properly capitalize and amortize the relevant §174 R&E expenditures over the specified amortization period."
Why It's Wrong
This instruction is outdated for tax years beginning after December 31, 2024. Under §174A, domestic R&E is no longer amortized — it is fully expensed in the year incurred. Preparing amortization schedules is only relevant for: (a) foreign R&E costs (still 15-year amortization), and (b) 2022–2024 unamortized domestic costs being spread via the catch-up election.
✓ Updated Language
For tax years beginning after December 31, 2024: Domestic R&E expenditures should be fully expensed in the year incurred under new §174A — no amortization schedule is required. However, CPAs should: (a) prepare amortization schedules for any remaining foreign R&E costs (15-year rule still applies), and (b) calculate and document any unamortized domestic R&E balances from 2022–2024 to support catch-up deductions taken in 2025 or split across 2025–2026.
Outdated Statement
"Taxpayers implementing the capitalization and amortization requirement of the §174 R&E expenditures after the 2024 tax year are required to file a Form 3115 to change their methods of accounting."
Why It's Wrong
The OBBBA repealed the §174 capitalization requirement for domestic R&E starting in 2025. Taxpayers transitioning away from capitalization to expensing under §174A do NOT need to file Form 3115, per Rev. Proc. 2025-28. A statement attached to the return is sufficient.
✓ Updated Language
Per the OBBBA and IRS Rev. Proc. 2025-28: The §174 domestic capitalization requirement no longer applies for tax years beginning after December 31, 2024. Taxpayers transitioning to immediate expensing under new §174A do not need to file Form 3115 — a statement attached to the federal tax return is sufficient. Taxpayers with unamortized domestic R&E balances from 2022–2024 may also deduct remaining balances in 2025 (or 2025–2026) by attaching a statement; no Form 3115 is required for this recovery either.
Notes
The earlier parts of Step 3 referencing TCJA and Rev. Proc. 2023-08 remain accurate for 2024 and prior years. Context should be added to clarify which tax year each instruction applies to.
Outdated Statement
"What is the tax treatment for R&E expenditures incurred after December 31, 2021? — Taxpayers are required to capitalize and amortize all R&E expenditures over 5 years for domestic research, and 15 years for foreign research."
Why It's Wrong
The 5-year domestic amortization requirement has been repealed by the OBBBA for tax years beginning after December 31, 2024. This FAQ answer is accurate only for tax years 2022–2024 and is now incomplete without the OBBBA update.
✓ Updated Language
For tax years beginning after December 31, 2021 and before January 1, 2025 (TCJA rules): Taxpayers were required to capitalize and amortize domestic R&E over 5 years and foreign R&E over 15 years. For tax years beginning after December 31, 2024 (OBBBA rules): Domestic R&E expenditures are fully deductible in the year incurred under new §174A. Foreign R&E expenditures remain subject to 15-year amortization. Taxpayers with unamortized domestic balances from 2022–2024 may elect a catch-up deduction in 2025 or spread it across 2025–2026.
Key Reference Table
| Item | Detail |
|---|---|
| OBBBA Signed | July 4, 2025 (P.L. 119-21) |
| §174A Effective Date | Tax years beginning after December 31, 2024 |
| Applicable IRS Guidance | Rev. Proc. 2025-28 (replaces/supplements Rev. Proc. 2023-08 for 2025+) |
| Catch-Up Deduction — All Taxpayers | Deduct unamortized 2022–2024 domestic R&E in full in 2025, or split equally across 2025 and 2026 |
| Small Business Retroactive Relief Threshold | ≤ $31 million average annual gross receipts (§448(c) test) for 2022–2024 |
| Small Business Amended Return Deadline | July 4, 2026 (1 year from enactment) |
| §280C Retroactive Election Deadline (Small Business) | July 4, 2026 |
| Foreign R&E Amortization | Still 15 years — unchanged by OBBBA |
| §41 R&D Tax Credit | Unchanged — still available, unaffected by §174A changes |
| Software Development Costs | Still treated as R&E expenditures; eligible for §174A immediate expensing for domestic development |