Fast-track R&E deductions

The One Big Beautiful Bill Act (OBBBA) restores a prior-law tax break for research and experimentation (R&E) expenses, retroactive to January 1, 2025. Businesses can now currently deduct qualified R&E expenses instead of capitalizing and amortizing them over five years as required by the TCJA since 2022.

Qualified expenses include wages, materials, contract research, patent attorney fees and related costs incurred in connection with a trade or business. The activities must be aimed at discovering information that eliminates uncertainty in product development or improvement, including software development.

The OBBBA also allows businesses to elect the Alternative Simplified Credit (ASC) for R&D costs. The ASC equals 14% of the amount by which qualified expenses exceed 50% of the average for the three preceding tax years, offering a simpler alternative to the standard R&D credit calculation.