What's Happening?
The One Big Beautiful Bill Act (OBBBA) has introduced significant changes to Section 174, impacting how Research and Experimentation (R&E) expenses are handled. Previously, the Tax Cuts and Jobs Act required
all R&E expenses to be capitalized and amortized. The new legislation allows taxpayers to deduct domestic R&E expenses, providing more flexibility in tax planning. This change is expected to influence the interest expense limitation calculation under Code Section 163(j), potentially affecting business interest deductions.
Why It's Important?
The changes to Section 174 are significant for businesses engaged in research and development, as they offer new opportunities for tax deductions. This can lead to increased cash flow and investment in innovation, benefiting industries reliant on R&D. The ability to deduct domestic R&E expenses may encourage more domestic research activities, boosting technological advancements and economic growth. Businesses must carefully evaluate the implications of these changes to optimize their tax strategies and maximize benefits.
