OBBBA Bill Proposes Section 174 Rollback

One Big Beautiful Bill Act

What OBBBA Proposes

If passed as currently drafted, OBBBA would roll back the requirement to capitalize domestic R&D expenses under Section 174. Companies could again deduct qualified U.S. research costs as they occur—starting with tax years beginning after December 31, 2024.

However, foreign research would remain subject to 15-year capitalization.

Impact on the R&D Credit

If full expensing returns, Section 280C will also come back into play. This would revert the research credit to the reduced rate that applied before 2022—roughly a 21% reduction compared to current claims.

In other words, most taxpayers would move from a 100% gross credit to about 79%. While the credit shrinks, the ability to expense domestic R&D again offsets some of that loss.

Planning for Q2 and Q3 Estimates

Because the bill is not yet enacted, MASSIE recommends taking a conservative approach to quarterly tax payments.

• Don’t assume the bill will pass before July 4.

• If you reduce Q2 estimates for potential cash flow savings, be ready to adjust Q3 if the bill stalls.

• Model both full-expensing and reduced-credit scenarios to understand the tradeoffs.

If OBBBA passes later this year, it will likely include both Section 174 and 280C fixes as written.

Long-Term Outlook and Strategy

This legislation would apply to expenses incurred in tax years beginning after December 31, 2024, and before January 1, 2030. Because it’s a five-year provision, not a permanent fix, companies should plan for future uncertainty.

For now, the most practical step is keeping domestic and foreign R&D clearly separated in your systems. While moving foreign work back to the U.S. could reduce amortization costs, it’s rarely worth the expense.

Final Thoughts

MASSIE expects bipartisan support to carry this bill through, though the timing remains uncertain. If enacted, the Section 174 rollback and 280C adjustment would mark a major return to pre-2022 norms for R&D expensing.

Watch Jason’s full update for insight into how these changes could impact your 2025 planning—and what steps to take now.

If you’d like to discuss how OBBBA could affect your company’s R&D tax position, reach out to us. We’d love to talk.