26 U.S.C. § 174A — Domestic research or experimental expenditures

submitted 1 year ago by Pub. L. 119-21 to r/title-26-INTERNAL-REVENUE-CODE · 511 words · no verdicts yet

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Businesses can fully deduct research costs from work done inside the United States, right when they pay them. If they choose, they can instead spread the deduction over at least 60 months. Some property and exploration costs don't qualify.

(a) Treatment as expenses: Even though section 263 normally requires capitalizing certain costs, a taxpayer may deduct "domestic research or experimental expenditures" paid or incurred during the tax year, right away. (b) Domestic research or experimental expenditures: This means research or experimental costs paid or incurred by the taxpayer in connection with the taxpayer's trade or business, as long as they are not "foreign research" costs under section 41(d)(4)(F). (c) Amortization of certain domestic research or experimental expenditures: (1) In general: A taxpayer can instead choose (by election, following IRS rules) to capitalize these costs and amortize them evenly over a period the taxpayer picks — at least 60 months, starting with the month the taxpayer first gets benefits from the costs. This choice applies only to costs that would otherwise be capital costs but that are not for property eligible for depreciation (section 167) or depletion (section 611) allowances. (2) Time for and scope of election: The taxpayer must make this election by the tax return's filing deadline (including extensions) for the year the election applies to. Once made, the taxpayer must keep using the chosen method and time period for that year and all future years, unless the IRS approves a change. The election cannot apply to costs paid or incurred before the year of the election. (d) Special rules: (1) Land and other property: same as under section 174 — land costs are excluded; depreciable or depletable property costs are excluded, but the depreciation or depletion allowances themselves count as research expenditures. (2) Exploration expenditures: excluded, same as section 174. (3) Software development: counts as a research expenditure, same as section 174.

the actual law source: uscode.house.gov ↗public domain

(a) Treatment as expenses

Notwithstanding section 263, there shall be allowed as a deduction any domestic research or experimental expenditures which are paid or incurred by the taxpayer during the taxable year.

(b) Domestic research or experimental expenditures

For purposes of this section, the term “domestic research or experimental expenditures” means research or experimental expenditures paid or incurred by the taxpayer in connection with the taxpayer’s trade or business other than such expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F)).

(1) In general

At the election of the taxpayer, made in accordance with regulations or other guidance provided by the Secretary, in the case of domestic research or experimental expenditures which would (but for subsection (a)) be chargeable to capital account but not chargeable to property of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion), subsection (a) shall not apply and the taxpayer shall—

(A)

charge such expenditures to capital account, and

(B)

be allowed an amortization deduction of such expenditures ratably over such period of not less than 60 months as may be selected by the taxpayer (beginning with the month in which the taxpayer first realizes benefits from such expenditures).

(2) Time for and scope of election

The election provided by paragraph (1) may be made for any taxable year, but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The method so elected, and the period selected by the taxpayer, shall be adhered to in computing taxable income for the taxable year for which the election is made and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method (or to a different period) is authorized with respect to part or all of such expenditures. The election shall not apply to any expenditure paid or incurred during any taxable year before the taxable year for which the taxpayer makes the election.

(d) Special rules

(1) Land and other property

This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures.

(2) Exploration expenditures

This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas).

(3) Software development

For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure.

Source credit: (Added Pub. L. 119–21, title VII, § 70302(a), July 4, 2025, 139 Stat. 190.)

history & why it existsrecord from the source credit

2025Enacted · Pub. L. 119-21 · 139 Stat. 190

A history note hasn’t been published yet. The record shows enactment by Pub. L. 119-21 on 2025-07-04.

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