Domestic R&D Is Deductible Again — and the Catch-Up Window Closes July 6, 2026

Key takeaways

• New IRC § 174A restores full, current-year expensing of domestic research and experimental costs for tax years beginning after December 31, 2024.
• Rev. Proc. 2025-28 sets the mechanics, including a one-time catch-up for amounts capitalized under the prior § 174 regime — deductible in 2025, or ratably across 2025 and 2026.
• Eligible small businesses (average annual gross receipts of $31 million or less) may make retroactive § 174A elections for tax years 2022, 2023, and 2024 — but only until the earlier of July 6, 2026, or the § 6511 refund deadline.
• Foreign research remains on a 15-year amortization schedule. The restoration is domestic only.

What § 174A undoes

From 2022 forward, businesses were required to capitalize research and experimental expenditures and amortize them — five years for domestic costs, fifteen for foreign — rather than deduct them when incurred. The effect was punishing for research-heavy companies: real cash spent on people and product produced only a fractional deduction in the year of the spend. Profitable startups paid tax on income they had reinvested.

OBBBA added IRC § 174A, which restores immediate expensing of domestic research and experimental costs for tax years beginning after December 31, 2024. A business may again deduct qualifying domestic R&E in the year paid or incurred, or elect to capitalize and amortize over not less than 60 months if that fits its planning. Foreign research costs continue under the 15-year regime — the relief is deliberately limited to domestic spend.

The procedural guidance — and the deadline that matters

Statutory relief needs procedural plumbing. Rev. Proc. 2025-28 provides it, and two features create live decisions in 2026.

The catch-up of previously capitalized amounts

Businesses carrying unamortized domestic § 174 balances from 2022 through 2024 are not stuck recovering them slowly. The guidance allows the remaining amount to be deducted in the first taxable year beginning after December 31, 2024, or spread ratably across that year and the next. For a company with several years of capitalized research costs on its books, this is a meaningful one-time deduction — and a choice about whether to take it all at once or split it.

The small-business retroactive election — and July 6, 2026

This is the provision with a clock on it. Small businesses — those meeting the average annual gross receipts test of $31 million or less — may elect § 174A treatment *retroactively* for tax years beginning after December 31, 2021. That means amended returns or administrative adjustment requests for 2022, 2023, and 2024 to claim refunds of tax paid under the capitalization regime.

The window is not open-ended. The retroactive election must be made by the earlier of July 6, 2026, or the applicable § 6511 statute of limitations for the year in question. For many small businesses, July 6, 2026 is the binding date. After it passes, the retroactive refund opportunity for the years it covers is gone.

Why this is a first-half-of-2026 decision

The instinct with tax elections is to fold them into year-end planning. That instinct is wrong here. The catch-up affects the 2025 return now being prepared, and the small-business retroactive election expires in early July. A research-intensive company that waits until the fourth quarter to think about § 174A will have already missed the retroactive window and may have filed its 2025 return without optimizing the catch-up.

The work to do now: confirm whether the business meets the $31 million gross-receipts test; quantify the domestic R&E capitalized in 2022 through 2024; model whether the catch-up is better taken fully in 2025 or split with 2026; and, for qualifying small businesses, decide on the retroactive election and prepare the amended returns before the July 6 deadline.

Bottom line

The return of domestic R&D expensing is a genuine and overdue correction, but the most valuable piece of it — the retroactive refund for small businesses and the one-time catch-up of capitalized amounts — runs on a deadline that falls in the first half of 2026. For research-intensive companies, July 6, 2026 should be on the calendar now, and the gross-receipts and capitalized-cost analysis should already be underway.