Deduction of domestic research and experimental expenditures

(a) Suspension of amortization for domestic research and experimental expenditures Section 174 is amended by adding at the end the following new subsection: (e) Suspension of application to domestic research and experimental expenditures In the case of any domestic research or experimental expenditures (as defined in section 174A(b)), this section shall not apply to such expenditures paid or incurred in taxable years beginning after December 31, 2024, and before January 1, 2030.. (b) Reinstatement of expensing for domestic research and experimental expenditures Part VI of subchapter B of chapter 1 is amended by inserting after section 174 the following new section: 174A. Temporary rules for domestic research and experimental expenditures (a) Treatment as expenses Notwithstanding section 263, there shall be allowed as a deduction any domestic research or experimental expenditures which are paid or incurred by the taxpayer during the taxable year. (b) Domestic research or experimental expenditures For purposes of this section, the term domestic research or experimental expenditures means research or experimental expenditures paid or incurred by the taxpayer in connection with the taxpayer’s trade or business other than such expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F)). (c) Amortization of certain domestic research and experimental expenditures (1) In general At the election of the taxpayer, made in accordance with regulations or other guidance provided by the Secretary, in the case of domestic research or experimental expenditures which would (but for subsection (a)) be chargeable to capital account but not chargeable to property of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion), subsection (a) shall not apply and the taxpayer shall— (A) charge such expenditures to capital account, and (B) be allowed an amortization deduction of such expenditures ratably over such period of not less than 60 months as may be selected by the taxpayer (beginning with the midpoint of the taxable year in which such expenditures are paid or incurred). (2) Time for and scope of election The election provided by paragraph (1) may be made for any taxable year, but only if made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). The method so elected, and the period selected by the taxpayer, shall be adhered to in computing taxable income for the taxable year for which the election is made and for all subsequent taxable years unless, with the approval of the Secretary, a change to a different method (or to a different period) is authorized with respect to part or all of such expenditures. The election shall not apply to any expenditure paid or incurred during any taxable year before the taxable year for which the taxpayer makes the election. (d) Special rules (1) Land and other property This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures. (2) Exploration expenditures This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (3) Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. (e) Termination (1) In general This section shall not apply to amounts paid or incurred in taxable years beginning after December 31, 2029. (2) Change in method of accounting In the case of a taxpayer’s first taxable year beginning after December 31, 2029, paragraph (1) (and the corresponding application of section 174) shall be treated as a change in method of accounting for purposes of section 481 and— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as made with the consent of the Secretary, and (C) such change shall be applied only on a cut-off basis for any domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2029, and no adjustment under section 481(a) shall be made.. (c) Treatment of foreign research or experimental expenditures upon disposition Section 174(d) is amended by inserting or reduction to amount realized after no deduction. (d) Coordination with certain other provisions (1) Research credit (A) Section 41(d)(1)(A) is amended by inserting or domestic research or experimental expenditures under section 174A after section 174. (B) Section 280C(c) is amended by adding at the end the following new paragraph: (4) Domestic research or experimental expenditures The domestic research or experimental expenditures otherwise taken into account under section 174A shall be reduced by the amount of the credit allowed under section 41(a).. (C) Section 280C(c) is amended— (i) in paragraph (1)(B)— (I) by striking a deduction and inserting an amortization deduction, and (II) by inserting under section 174 after basic research expenses, and (ii) in paragraph (2)(A)(i), by striking paragraph (1) and inserting paragraphs (1) and (4). (2) AMT adjustment Section 56(b)(2) is amended— (A) by striking 174(a) each place it appears and inserting 174A(a), and (B) by adding at the end of subparagraph (A) the following new flush sentence: In the case of research and experimental expenditures charged to capital account and amortized under section 174 or 174A, such amounts shall be amortized for purposes of this subsection as provided in clause (ii).. (3) Optional 10-year writeoff Section 59(e)(2)(B) is amended by striking section 174(a) (relating to research and experimental expenditures) and inserting section 174A(a) (relating to temporary rules for domestic research and experimental expenditures). (4) Qualified small issue bonds Section 144(a)(4)(C)(iv) is amended by inserting or 174A(a) after 174(a). (5) Start-up expenditures Section 195(c)(1) is amended by striking or 174 in the last sentence and inserting 174, or 174A. (6) Capital expenditures (A) Section 263(a)(1)(B) is amended by inserting or 174A after 174. (B) Section 263A(c)(2) is amended by inserting or 174A after 174. (7) Active business computer software royalties Section 543(d)(4)(A)(i) is amended by inserting 174A, after 174,. (8) Source rules Section 864(g)(2) is amended in the last sentence— (A) by striking treated as deferred expenses under subsection (b) of section 174 and inserting allowed as an amortization deduction under section 174(a) or section 174A(c),, and (B) by striking such subsection and inserting such section (as the case may be). (9) Basis adjustment Section 1016(a)(14) is amended by striking deductions as deferred expenses under section 174(b)(1) (relating to research and experimental expenditures) and inserting deductions under section 174 or 174A(c). (10) Small business stock Section 1202(e)(2)(B) is amended by striking research and experimental expenditures under section 174 and inserting specified research or experimental expenditures under section 174 or domestic research or experimental expenditures under section 174A. (e) Clerical amendment The table of sections for part VI of subchapter B of chapter 1 is amended by inserting after the item relating to section 174 the following new item: Sec. 174A. Temporary rules for domestic research and experimental expenditures.. (f) Effective date and special rule (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2024. (2) Treatment of foreign research or experimental expenditures upon disposition The amendment made by subsection (c) shall apply to property disposed, retired, or abandoned after May 12, 2025. (3) Coordination with research credit The amendments made by subparagraphs (B) and (C) of subsection (d)(1) shall apply to taxable years beginning after December 31, 2024. (4) Special rule for short taxable years The Secretary of the Treasury may prescribe such rules as are necessary or appropriate to provide for the application of the amendments made by this section in the case of any taxable year of less than 12 months that begins after December 31, 2024, and ends before the date of the enactment of this Act. (5) Change in method of accounting The amendments made by this section shall be treated as a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 and— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as made with the consent of the Secretary, and (C) such change shall be applied only on a cut-off basis for any research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024, and no adjustments under section 481(a) shall be made. (6) No inference The amendments made by subparagraphs (B) and (C) of subsection (d)(1) shall not be construed to create any inference with respect to the proper application of section 280C(c) of the Internal Revenue Code of 1986 with respect to taxable years beginning before January 1, 2025.