The tax landscape for American businesses recently received a revitalizing overhaul after the enactment of the H.R.1 - One Big Beautiful Bill Act (OBBBA) on July 4, 2025. This comprehensive legislation brings sweeping changes impacting research and development (R&D) tax treatment and bonus depreciation. These new provisions offer substantial benefits and crucial planning opportunities for businesses looking to innovate and invest.
R&D Expensing: Immediate Deductions Restored
The restoration of immediate expensing for domestic R&D expenditures is among the most anticipated and impactful changes. Under the "Tax Cuts and Jobs Act of 2017" (TCJA), businesses were required to capitalize and amortize domestic R&D costs over a five-year period – or a 15-year period, for foreign R&D expenditures – for tax years beginning after Dec. 31, 2021. This change negatively impacted the cash flow of many innovative small businesses and startups.
Key R&D Provisions in the OBBBA:
- Full Expensing Restored
- For tax years beginning after Dec. 31, 2024, businesses can again deduct domestic R&D expenditures in the year they are incurred.
- This restoration provides immediate tax savings and improves cash flow.
- Flexible Amortization
- While immediate expensing remains the default, taxpayers now have the option to elect to capitalize and amortize domestic R&D expenditures over a five-year or 10-year period.
- This flexibility allows businesses to tailor their R&D deductions to meet their tax-planning needs.
- Retroactive Relief for Small Businesses
- Small businesses (i.e., those with average annual gross receipts less than or equal to $31 million) can generally apply immediate expensing retroactively to tax years beginning after Dec. 31, 2021.
- Many small and medium-sized businesses can amend prior returns and recover previously amortized costs, fueling a financial boost.
- Accelerated Dedication of Unamortized Costs
- For all other taxpayers who capitalized domestic R&D expenses between Jan. 1, 2022, and Jan. 1, 2025, the OBBBA allows for an election to accelerate the deduction of any remaining unamortized amounts over a one-year or two-year period.
- Unchanged Foreign R&D Treatment
- The treatment of foreign R&D expenditures remains unchanged. They will continue to be capitalized and amortized over a 15-year period.
- This distinction aims to incentivize U.S.-based research.
Accelerated Depreciation Returns: 100% Bonus Reinstated
The restoration of 100% bonus depreciation critically impacts business investment. Before the OBBBA’s passage, bonus depreciation was on a scheduled phasedown, reaching 40% in 2025 and set to zero in subsequent years.
Key Bonus Depreciation Provisions in the OBBBA:
- 100% Bonus Depreciation Permanently Reinstated
- 100% bonus depreciation is restored for qualified property acquired and placed in service on or after Jan. 20, 2025. This reinstatement means businesses can immediately deduct the full cost of eligible new or used tangible personal property, rather than depreciating it over several years.
- This change is permanent, removing the uncertainty of future phasedowns.
- New Bonus Depreciation for Qualified Production Property (QPP)
- A new 100% bonus depreciation allowance is now available for QPP. This provision applies to nonresidential real estate used in the manufacturing, production, or refining of tangible personal property. Eligibility requires construction to begin after Dec. 31, 2024, and the property to be placed in service before Jan. 1, 2034.
- This policy seeks to spur domestic manufacturing and production.
- Section 179 Expensing Limit Increased
- Section 179’s maximum expensing limit increased to $2.5 million, with a phase-out beginning at $4 million for property placed in service after Dec. 31, 2024. These amounts will be adjusted annually for inflation.
- This increase offers small businesses and startups expanded opportunities to write off equipment costs.
Implications for Innovation and Investment
The OBBBA presents businesses investing in R&D with new opportunities to optimize their tax strategies and stimulate growth. Immediate R&D expensing and 100% bonus depreciation will improve cash flow for companies investing in innovation and capital assets. Increasing R&D activities and substantial capital investments are incentivized to drive economic growth and job creation.
U.S. businesses should immediately reassess their tax-planning strategies. This process should consider amending prior returns for retroactive R&D benefits and re-evaluating capital-expenditure plans for the remainder of 2025 and beyond.
Schedule a free consultation with Randy Eickhoff, CPA, Acena’s Founder & Head Coach, for immediate assistance. We will help you plan strategically to get the most out of your taxes.
Stay Informed
Register for our free monthly webinar, next on August 19: “Cracking the (Tax) Code for R&D: Project & Financial Documentation.”
- This workshop provides one CPE credit for professionals who are keeping up with continuing education.
- Learn more about qualifying and documenting R&D activities for tax incentives.
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Edited by Laura Whittenburg, MSBME, at Acena Consulting. Photo courtesy of Arend Vermazeren on Flickr.