Section 174 Amortization Repeal in 2025 & Future IRC Changes

The legislative process is a long and winding road, so that even concepts with bipartisan support sometimes become hostages to other battles and fail to win approval. Additionally, competing legislative priorities could leave this update on the scrap heap.

Republicans have narrow majorities in both houses, so that any defections from the ranks on a larger bill that includes the repeal of Section 174 amortization could doom passage. A similar bill was introduced in the House last year and got stalled in the Senate. 

Here is what is at stake: 

Allergic to uncertainty, businesses are left to wonder about their investment and tax strategies going forward. For years, the government incentivized American innovation and growth strategies by allowing businesses to deduct the total amount of R&D expenditures as an expense in the taxable year.

The provision that required the amortization of R&D expenses over a half-decade (or 15 years for research beyond U.S. borders) has reduced the present value of the credit and added a significant amount of complexity to the accounting. 

The National Science Foundation estimates that American companies have amortized $100 billion in R&D expenditures in the three tax years since that provision went into effect. Retroactive relief could unlock up to $240 billion for immediate expensing, again, according to the National Science Foundation.  

Why do businesses care whether their tax cuts accrue to a single year or get spread out over the next five? Three answers: the present value of money, cash flow and investment in business operations. Let’s take them one at a time.