New Tax Law Mandates 15-Year Amortization for Foreign R&D, Allows Immediate Deduction for Domestic Software Labor

Washington D.C. – The U.S. Congress has approved the "One Big Beautiful Bill," a comprehensive tax reform package signed into law by President Trump on July 3, 2025. This legislation introduces a significant shift in the tax treatment of research and development (R&D) expenses, particularly distinguishing between domestic and foreign activities. The bill aims to stimulate domestic innovation and investment through its revised tax provisions.

A key change within the new law directly impacts how companies account for their R&D expenditures. As stated by Techmeme, "The One Big Beautiful Bill approved by Congress allows immediate deduction of US software labor; foreign R&D still must be amortized over 15 years (KBKG)." This provision, formalized under the new IRC Section 174A, temporarily suspends the prior requirement from the 2017 Tax Cuts and Jobs Act (TCJA) that mandated the capitalization and amortization of domestic R&D costs over five years.

Beyond R&D, the extensive tax package includes several other notable changes designed to benefit businesses. The bill permanently restores 100% bonus depreciation for qualified assets, allowing immediate expensing of new and used equipment. It also increases the Section 179 expensing cap to $2.5 million, with a phase-out threshold of $4 million, and makes the 20% qualified business income (QBI) deduction permanent, offering stability for small and medium-sized businesses.

The "One Big Beautiful Bill" is a broad legislative effort, also addressing areas such as individual tax rates, the state and local tax (SALT) deduction cap, and the termination or modification of various green energy tax credits. Additionally, it introduces new fees for certain immigration applications and allocates substantial funding for NASA and border security, reflecting a wide range of policy priorities.

The bill's passage on July 3, after navigating the reconciliation process between House and Senate versions, represents a swift legislative achievement for the administration. While supporters, including House Science, Space, and Technology Committee Chairman Brian Babin, lauded the bill for strengthening U.S. competitiveness and fostering private-sector investment, some analysts, such as Paychex, have highlighted concerns about its projected $3.3 trillion addition to the deficit over the next decade.