What You Need to Know
Beginning with January 2022, R&D expenses are required to be capitalized and amortized under Sec. 174. Prior to 2022, companies could deduct research, software development, and experimental spending, but now must spread that deduction over 5 years (15 years for international R&D costs). The R&D tax credit allowed under Sec. 41 remains viable.
The push in December for Congress to repeal or delay the required capitalization rule change failed, despite bipartisan support. Congress may revisit this in the future, but for now companies should consult with their CPAs and plan to address possible reporting and cash flow issues that arise from the change to R&D capitalization.