---
title: "IRS issues guidance on R&E expense deductions under OBBBA"
date: 2025-09-29
author: "Gina Khawam"
featured_image: "https://beachfleischman.com/wp-content/uploads/2025/09/2025-0929-IRS-releases-guidance-on-changes-to-R_E-expensing_blog.avif"
categories:
  - name: "Tax Bites"
    url: "/category/tax-bites.md"
---

# IRS issues guidance on R&E expense deductions under OBBBA

[The IRS has released **Revenue Procedure 2025-28**](https://www.irs.gov/pub/irs-drop/rp-25-28.pdf), offering transitional guidance on how businesses should handle **research and experimental (R&E) expenses** following changes introduced by the [One Big Beautiful Bill Act (OBBBA)](https://beachfleischman.com/tag/obbba/). These updates restore the ability to immediately deduct domestic R&E costs under **Section 174**, starting in 2025.

## Key Highlights for Businesses

### 1. Immediate Deduction Reinstated

Under the TCJA, businesses were required to amortize domestic R&E expenses over five years and foreign expenses over fifteen. The OBBBA reverses this for domestic costs, allowing **immediate deductions** for expenses incurred in tax years beginning after December 31, 2024.

### 2. Retroactive Relief for Small Businesses

Eligible small businesses, those with **average annual gross receipts of $31 million or less** over the prior three years, can apply the new rules retroactively to **2022 through 2024**. This may allow amended returns and potential refunds for previously amortized expenses.

### 3. Accelerated Recovery of Unamortized Expenses

Businesses with remaining unamortized domestic R&E costs from 2022–2024 may elect to:

- Deduct the full remaining amount in 2025, or
- Amortize it evenly over 2025 and 2026.

### 4. Optional Capitalization

Immediate deduction is not mandatory. Taxpayers may elect to **capitalize and amortize** domestic R&E expenses over at least 60 months. This election must be made by the due date of the original return (including extensions) for the applicable tax year.

### 5. Interaction with the Research Credit

The OBBBA modifies how the **Section 41 research credit** interacts with R&E deductions. Taxpayers must reduce their deduction by the full amount of the credit claimed. Alternatively, they may elect to reduce the credit instead. Small businesses can make **late elections or revoke prior elections** for tax years filed before September 15, 2025.

### 6. Accounting Method Changes

The IRS provides **automatic consent** for accounting method changes related to R&E expenses. In many cases, taxpayers can file a **statement in lieu of Form 3115**, simplifying the process.

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