Section 174 is the part of the tax code governing how research and development costs are deducted. Rules changed substantially in 2022, requiring R&D costs to be spread out (amortized) over several years instead of deducted immediately, with a partial reversal restoring immediate deduction starting in 2025.
From 2022 through 2024, domestic R&D spending had to be amortized over 5 years (15 for foreign research), using a half-year convention that meant only a small fraction of that year's R&D spend was actually deductible in year one. That created real, sometimes surprising tax bills for R&D-heavy companies that hadn't planned for the timing shift.
Full same-year expensing was restored for tax years starting in 2025 under new rules, and companies that amortized costs in the interim window may be able to recover some of that deferred deduction. This is separate from the R&D tax credit itself: Section 174 governs when R&D costs can be deducted, while the credit is a dollar-for-dollar reduction in tax owed, and a company can be affected by both at once.
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