A major tax change in the OBBBA is the return to immediate expensing for research costs beginning with a taxpayer’s first taxable year beginning after Dec. 31, 2024. Although this OBBBA provision does not provide specifically for retroactivity, it does provide an optional election for taxpayers to accelerate the deduction of any capitalized domestic research costs that remain unamortized under the TCJA capitalization regime.
In addition, the OBBBA provides that any change to immediate expensing or a separate capitalization provision contained within the new section 174A domestic expensing statute is an accounting method change for which consent must be requested by a taxpayer.
The IRS released procedural guidance on Aug. 28, 2025, that provides the election mechanics for a taxpayer to accelerate any unamortized amounts. The 61-page guidance also explains how a taxpayer may request an accounting method change from the TCJA’s capitalization of domestic research costs to the OBBBA method(s) of treating domestic research costs.
Here are answers to questions we are most frequently asked regarding accelerating research costs under the OBBBA:
Transition election and the recovery of unamortized TCJA capitalized domestic research costs
What are the various acceleration options available to a taxpayer?
Setting aside the small business retroactivity election, which we address in a separate article, a taxpayer may make an election to recover any unamortized TCJA capitalized domestic research costs.
For such costs, a taxpayer may choose one of the following three options:
- Continue the 5-year amortization period under the TCJA.
- Amortize the remaining capitalized domestic costs in full over the first taxable year beginning after Dec. 31, 2024.
- Amortize the remaining capitalized domestic costs ratable over a period of two taxable years, beginning with the first taxable year after Dec. 31, 2024.
If a taxpayer chooses to accelerate the unamortized costs, is the recovery of such costs considered amortization for purposes of the business interest expense limitation under section 163(j)?
It certainly appears that way. The language in Rev. Proc. 2025-28 is careful to state the recovery of the TCJA’s capitalized domestic research costs as a change in the amortization period over which any remaining unamortized amounts are taken into account.
Why would a taxpayer choose anything other than accelerating in full in the first taxable year after Dec. 31, 2024?
Due to the TCJA’s changes to net operating loss carryback rules, as well as a limitation on the amount of a net operating loss that can be utilized in a given year, it may be more beneficial for a taxpayer to spread the recovery of these capitalized costs over the original five-year period or the two taxable-year period.
A taxpayer should carefully determine the best multiple-year tax position, taking into account 100% bonus depreciation, the immediate expensing of domestic research costs and the return of the depreciation and amortization addback to the business interest expense limitation, as well as the interactivity of taxable income and foreign provisions, such as foreign-derived deduction eligible income analysis and net CFC tested income.
How does a taxpayer make the election to accelerate the deduction of capitalized domestic research costs that remain unamortized?
The guidance provides a new automatic method change to make this election. The OBBBA provides that the election is to be treated as a method of accounting. It is important to note, however, that there is no section 481(a) catch-up adjustment. Instead, there is a separate amortization deduction provided with the election.
Accounting method changes for OBBBA domestic research cost amendments
Is a taxpayer required to make an accounting method change to move from the TCJA capitalization to the OBBBA’s expensing of domestic research costs or OBBBA capitalization of domestic research costs?
Yes. Helpfully, if the change is made in the first taxable year beginning after Dec. 31, 2024, a taxpayer can file a statement in lieu of a Form 3115. This statement provides a simpler path to changing the accounting method and does not require a duplicate copy to be filed (something that must be done with most changes).
Many taxpayers have filed changes for research costs, whether in the first taxable year beginning after Dec. 31, 2022, or at some time later due to corrections in amounts capitalized or various other reasons. What about the rule that prohibits filing multiple changes for the same thing in a certain time period?
Generally, that is correct. A taxpayer typically is not permitted to use the automatic change procedures to change the same item within a five-taxable-year period. This guidance, however, provides a waiver to those rules to allow taxpayers to file this change. In addition, a taxpayer cannot typically file an accounting method change in the final year of a trade or business—and that restriction is also waived.
Short-period returns
What about a taxpayer that had a short period that began in 2025 that already filed a tax return or needs to file a tax return shortly?
If a taxpayer filed, or will file, a tax return on or before Sept. 15, 2025, for a taxable year beginning after Dec. 31, 2024, it will be deemed to comply with the procedures to change its method of accounting for domestic research costs paid or incurred in taxable years beginning after Dec. 31, 2024, if the taxpayer did either of the following:
- Properly deducted the domestic research cost amounts in accordance with the OBBBA section 174A deduction method.
- Reported the amount of domestic research costs paid or incurred on Form 4562, Depreciation and Amortization, and properly capitalized and amortized such domestic research costs in accordance with the OBBBA section 174A(c) capitalization method for such taxable year.
Overall, it is extremely helpful to taxpayers to have this procedural guidance out so quickly after the passage of OBBBA. Again, companies should be working with their tax advisors to model out the multiyear impacts of the return to immediate expensing and the options available to accelerate previously capitalized domestic research costs.
