26 U.S.C. § 174A (INTERNAL REVENUE CODE)
§ 174A. Domestic research or experimental expenditures
(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)).
(c) Amortization of certain domestic research or experimental expenditures
(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.
(Added Pub. L. 119–21, title VII, § 70302(a), July 4, 2025, 139 Stat. 190.)
heading: Statutory Notes and Related Subsidiaries
heading: Effective Date
text: Pub. L. 119–21, title VII, § 70302(e), (f), July 4, 2025, 139 Stat. 193, 194, provided that:
“(e) Effective Date.—
“(1) In general.—
Except as otherwise provided in this subsection or subsection (f)(1), the amendments made by this section [enacting this section and amending sections 41, 56, 59, 144, 174, 195, 263, 263A, 280C, 543, 864, 1016, and 1202 of this title] shall apply to amounts paid or incurred in taxable years beginning after December 31, 2024.
“(2) Treatment of foreign research or experimental expenditures upon disposition.—
“(A) In general.—
The amendment by subsection (b)(1)(C)(ii) [amending section 174 of this title] shall apply to property disposed, retired, or abandoned after May 12, 2025.
“(B) No inference.—
The amendment made by subsection (b)(1)(C)(ii) shall not be construed to create any inference with respect to the proper application of section 174(d) of the Internal Revenue Code of 1986 with respect to taxable years beginning before May 13, 2025.
“(3) Coordination with research credit.—
The amendment made by subsection (b)(2)(B) [amending section 280C of this title] shall apply to taxable years beginning after December 31, 2024.
“(4) No inference with respect to coordination with research credit for prior periods.—
The amendment made by subsection (b)(2)(B) shall not be construed to create any inference with respect to the proper application of section 280C(c) of the Internal Revenue Code of 1986 with respect to taxable years beginning before January 1, 2025.
“(f) Transition Rules.—
“(1) Election for retroactive application by certain small businesses.—
“(A) In general.—
At the election of an eligible taxpayer, paragraphs (1) and (3) of subsection (e) shall each be applied by substituting ‘December 31, 2021’ for ‘December 31, 2024’. An election made under this subparagraph shall be made in such manner as the Secretary may provide and not later than the date that is 1 year after the date of the enactment of this Act [July 4, 2025]. The taxpayer shall file an amended return for each taxable year affected by such election.
“(B) Eligible taxpayer.—
For purposes of this paragraph, the term ‘eligible taxpayer’ means any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for the first taxable year beginning after December 31, 2024.
“(C) Election treated as change in method of accounting.—
In the case of any taxpayer which elects the application of subparagraph (A)—
“(i) such election may be treated as a change in method of accounting for purposes of section 481 of such Code for the taxpayer’s first taxable year affected by such election,
“(ii) such change shall be treated as initiated by the taxpayer for such taxable year,
“(iii) such change shall be treated as made with the consent of the Secretary, and
“(iv) subsection (c) shall not apply to such taxpayer.
“(D) Election regarding coordination with research credit.—
An election under section 280C(c)(2) of the Internal Revenue Code of 1986 (or revocation of such election) for any taxable year beginning after December 31, 2021, by an eligible taxpayer making an election under subparagraph (A) shall not fail to be treated as timely made (or as made on the return) if made during the 1-year period beginning on the date of the enactment of this Act on an amended return for such taxable year.
“(2) Election to deduct certain unamortized amounts paid or incurred in taxable years beginning before january 1, 2025.—
“(A) In general.—
In the case of any domestic research or experimental expenditures (as defined in section 174A, as added by subsection (a)) which are paid or incurred in taxable years beginning after December 31, 2021, and before January 1, 2025, and which was charged to capital account, a taxpayer may elect—
“(i) to deduct any remaining unamortized amount with respect to such expenditures in the first taxable year beginning after December 31, 2024, or
“(ii) to deduct such remaining unamortized amount with respect to such expenditures ratably over the 2-taxable year period beginning with the first taxable year beginning after December 31, 2024.
“(B) Change in method of accounting.—
In the case of a taxpayer who makes an election under this paragraph—
“(i) such taxpayer shall be treated as initiating a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 with respect to the expenditures to which the election applies,
“(ii) such change shall be treated as made with the consent of the Secretary, and
“(iii) such change shall be applied only on a cut-off basis for such expenditures and no adjustments under section 481(a) shall be made.
“(C) Regulations.—
The Secretary of the Treasury (or the Secretary’s delegate) shall publish such guidance or regulations as may be necessary to carry out the purposes of this paragraph, including regulations or guidance allowing for the deduction allowed under subparagraph (A) in the case of taxpayers with taxable years beginning after December 31, 2024, and ending before the date of the enactment of this Act.”
heading: Applicability of Change in Method of Accounting
text: Pub. L. 119–21, title VII, § 70302(c), July 4, 2025, 139 Stat. 193, provided that:
“(1) In general.—
The amendments made by subsection (a) [enacting this section] shall be treated as a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 and—
“(A) such change shall be treated as initiated by the taxpayer,
“(B) such change shall be treated as made with the consent of the Secretary, and
“(C) such change shall be applied only on a cut-off basis for any domestic research or experimental expenditures (as defined in section 174A(b) of such Code (as added by this section) and determined by applying the rules of section 174A(d) of such Code) paid or incurred in taxable years beginning after December 31, 2024, and no adjustments under section 481(a) shall be made.
“(2) Special rules.—
In the case of a taxable year which begins after December 31, 2024, and ends before the date of the enactment of this Act [July 4, 2025]—
“(A) paragraph (1)(C) shall not apply, and
“(B) the change in method of accounting under paragraph (1) shall be applied on a modified cut-off basis, taking into account for purposes of section 481(a) of such Code only the domestic research or experimental expenditures (as defined in section 174A(b) of such Code (as added by this section) and determined by applying the rules of section 174A(d) of such Code) paid or incurred in such taxable year but not allowed as a deduction in such taxable year.”