The One Big Beautiful Bill Act (OBBBA) significantly reshapes the tax treatment of research and development (R&D) expenses starting in 2025. It reverses the TCJA requirement to capitalize domestic R&D costs and instead restores the option for immediate expensing. Taxpayers may still choose to capitalize and amortize these costs over a period of at least 60 months. Foreign R&D remains subject to 15-year amortization, and software development continues to be treated as research.

A major feature is the ability to accelerate deductions for previously capitalized but unamortized domestic R&D costs. Taxpayers can elect to write these off beginning with their first return after 2024, either all at once or spread across one or two years.

For small businesses (generally those with average gross receipts of $31 million or less), the OBBBA provides a special retroactive election. These taxpayers can apply the new expensing rules back to tax years beginning after 2021. Doing so requires filing amended 2022–2024 returns and adjusting R&D credits under Section 280C, but it may unlock valuable refunds. Treasury is expected to issue detailed guidance on making this election, which must be filed by July 4, 2026.

The law also clarifies coordination rules, such as how the R&D credit interacts with expensing, and provides flexibility for taxpayers to use different methods for prior versus current costs. Importantly, the start date for amortization under capitalization now shifts to when benefits are first realized, instead of the TCJA midpoint rule.

The OBBBA gives businesses more flexibility in managing R&D costs and creates strategic opportunities, especially for small businesses weighing cash flow benefits of refunds versus the administrative burden of amended filings. Careful modeling will be essential to decide between immediate expensing, acceleration, or continued amortization.