R&D Expensing Update: Critical July 6 Deadline Approaching

OBBBA updates R&D expense treatment: Limited window to act on retroactive R&D capitalization

The passage of the One Big Beautiful Bill Act (OBBBA) marked a pivotal shift in the tax treatment of research and development (R&D) expenditures. After several years of unfavorable capitalization rules, businesses now have an opportunity not only to benefit from restored expensing going forward but also to retroactively recover prior tax deductions. However, this opportunity comes with a firm and fast-approaching deadline: July 6, 2026.

We’ve outlined the changes that OBBBA made to R&D expensing, beginning with the opportunity to retroactively recover prior tax deductions.

Retroactive relief: A limited-time opportunity

The most significant benefit of the new legislation is the ability for eligible small businesses to retroactively reverse R&D capitalization for 2022–2024 and claim immediate deductions by filing amended returns.

To qualify, businesses must meet the small business gross receipts test (generally $31 million or less in average annual gross receipts). Those that qualify can:

• Amend prior-year tax returns (2022, 2023, and 2024)
• Convert previously amortized R&D expenses into immediate deductions
• Potentially generate substantial cash refunds

However, this opportunity is strictly time-limited.

Firm deadline: July 6, 2026

Eligible businesses have one year from enactment to act, with a hard filing deadline of July 6, 2026, to submit amended returns and make the retroactive election. After this date:

• Any potential cash recovery opportunity disappears
  • The ability to amend prior years for R&D expensing relief is permanently lost
  • Capitalized costs from 2022–2024 must remain amortized

Given the complexity of preparing amended filings and evaluating eligibility (including aggregation rules and ownership considerations), early action is critical.

 Assess Your R&D Expensing Opportunities

Permanent expensing of domestic R&D

Beginning with tax years after December 31, 2024, businesses can once again fully deduct domestic R&D expenditures in the year incurred. This change reverses the TCJA requirement that mandated five-year amortization and restores a more favorable, immediate tax benefit for innovation-focused companies.

Flexible treatment of unamortized R&D costs

For R&D expenses that were previously capitalized between 2022 and 2024, businesses now have options:

• Fully deduct remaining unamortized costs in 2025, or
• Spread those deductions over 2025 and 2026

While these options provide meaningful flexibility, they are often less impactful than the retroactive opportunity available to qualifying small businesses.

Strategic planning considerations

Businesses now have a narrow but valuable window that is closing fast. Companies should evaluate:

• Whether retroactive relief provides greater benefit than forward-looking deduction strategies
• The interaction between R&D expensing and the R&D tax credit under §41
• Eligibility under the gross receipts test and applicable aggregation rules
• Timing considerations related to filing and statute of limitations

A comprehensive review of R&D expenditures and tax positions can help ensure businesses fully maximize available benefits.

Take action now

With the July 6th deadline fast approaching, businesses should prioritize assessing eligibility and preparing the necessary amended filings. The retroactive relief provisions offer a rare chance to recover previously deferred tax benefits and unlock meaningful cash savings.

For more information on how these changes apply to your business, please reach out to our R&D Practice team to schedule a consultation.

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