IP Law Daily, VITAL BRIEFING: Popular tax deduction for domestic R&E costs revived by OBBBA, (Sep 4, 2025)

By WK Editorial Staff

Deductions under new IRC § 174A—which include labor and patent procurement costs—could encourage businesses to spend and hire domestically, as explained by a new Vital Briefing article.

Taxpayers will again be able to fully deduct domestic research and experimental (R&E) expenses, beginning in tax year 2025, under a provision of the One Big Beautiful Bill Act (P.L. 119-21). The legislation reinstated a popular tax deduction for R&E expenditures that could incentivize companies to hire and spend in the United States, especially startups and small businesses. Covered expenditures include those for full-time, part-time, and contract labor; specified materials and supplies; patent procurement, including attorney representation; and rents. Pursuant to new Internal Revenue Code § 174A, companies may now fully deduct all domestic R&E expenditures in the year they are incurred. The treatment of foreign research expenses will remain the same—that is, they must be capitalized and amortized over 15 years.

A new Vital Briefing article by Wolters Kluwer legal analyst Mina O. Capouet, J.D., LL.M., details the new domestic R&E deduction, including transition rules under IRC § 174A; effects on other tax provisions, including the research and development tax credit under IRC § 41; and the option for small businesses to retroactively apply the deduction as far back as 2022. The article, titled “Revival of the domestic R&E tax deduction incentivizes companies to hire in the U.S.,” is available here.

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