Congress passes tax bill to permanently restore R&D expensing and allow amendments for prior years
Congress Passes Bill Restoring Immediate R&D Tax Deductibility
In a major win for American innovation, Congress has officially passed a bill on July 3, 2025, restoring the immediate expensing of domestic research and development (R&D) costs under Section 174 of the tax code.
The legislative change reverses a provision from the 2017 Tax Cuts and Jobs Act that, starting in 2022, required businesses to amortize R&D expenses over five years-15 years for foreign R&D. This amortization rule significantly increased the after-tax cost of innovation, drawing widespread criticism from startups, manufacturers, and technology firms alike.
The newly passed bill reinstates the pre-2022 expensing rules retroactively, allowing companies to immediately deduct qualifying domestic R&D expenditures incurred from tax year 2022 onward. This move is expected to improve cash flow, support job creation, and incentivize investment in critical technologies across the U.S.
Importantly, the bill also retains the distinction between domestic and foreign R&D costs: foreign R&D must still be amortized over 15 years, a measure aimed at encouraging more innovation activity within U.S. borders.
Industry groups, including the National Association of Manufacturers and the Information Technology & Innovation Foundation, praised the legislation as a long-overdue correction. Tax professionals are now advising companies to revisit prior-year returns and consider amended filings to capture the retroactive benefits.
The restoration of full expensing for R&D is widely seen as a bipartisan signal that American competitiveness and technological leadership remain top national priorities.
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What is the R&D Tax Credit?
The Research & Experimentation Tax Credit (or R&D Tax Credit), is a general business tax credit under Internal Revenue Code section 41 for companies that incur research and development (R&D) costs in the United States. The credits are a tax incentive for performing qualified research in the United States, resulting in a credit to a tax return. For the first three years of R&D claims, 6% of the total qualified research expenses (QRE) form the gross credit. In the 4th year of claims and beyond, a base amount is calculated, and an adjusted expense line is multiplied times 14%. Click here to learn more.
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