Amortization R&D Tax Changes Postponed by House Budget Bill

A reconciliation bill passed the House Budget Committee on September 25 with amendments regarding the R&D tax credit requirements. The amendment would delay the requirement for companies to amortize research and development expenditures for four years. The delay would begin in 2022.

This amortization requirement came into play in the Tax Cuts and Jobs Act in 2017 with an initial delayed start date. This meant the new rules would apply only to those amounts paid or incurred in tax years beginning after December 31, 2021. Amortization of these expenditures would typically be spread over five years. This is a big change from the traditional route, where companies expense these investments in the same year the costs were incurred.

With the delay, this amortization factor will not apply to expenditures incurred in tax years of 2026 or later. Since the change was announced back in 2017, lawmakers on both sides have fully criticized the change to the expensing rules. By forcing companies to amortize their expenditures, it creates a scenario where companies will face increased upfront costs during their R&D activities. In fact, research into this change has predicted that the competitive nature in US R&D would be significantly hurt as a result.

You might wonder why this change was enacted, if it’s so broadly criticized. The change came along with a slew of other changes in the 2017 TCJA, all of which were meant to make the US economy more globally competitive. Unfortunately, by requiring companies to amortize their R&D expenditures, the time value of the costs are negatively afflicted, reducing the tax benefits for the companies. This could lead to less domestic R&D, as it will be more beneficial to conduct these activities elsewhere. As R&D activities move elsewhere, so do the jobs. It’s predicted that this change to the TCJA will have greatly negative downstream impacts for the economy. 

Luckily, with the delay of enactment, this problem can be put off for the next four years. The delay was suggested by a lawmaker as a way to buy time to find a more permanent resolution while still controlling the revenue cost for purposes of the Democrat’s reconciliation bill. All in all, companies are likely happy to hear about this delay and the chance for it to be changed before it has a chance to impact them.

Are you conducting research and development activities? Did you know your development work could be eligible for the R&D Tax Credit and you can receive up to 14% back on your expenses? Even if your development isn’t successful your work may still qualify for R&D credits (i.e. you don’t need to have a patent to qualify). To find out more, please contact a Swanson Reed R&D Specialist today or check out our free online eligibility test.

Who We Are:

Swanson Reed is one of the U.S.’ largest Specialist R&D tax advisory firms. We manage all facets of the R&D tax credit program, from claim preparation and audit compliance to claim disputes.

Swanson Reed regularly hosts free webinars and provides free IRS CE and CPE credits for CPAs. For more information please visit us at or contact your usual Swanson Reed representative.

Recent Posts