American Innovation and R&D Competitiveness Act of 2025
The American Innovation and R&D Competitiveness Act of 2025 aims to restore and clarify how research and development (R&D) expenditures are treated for federal income tax. It revives the ability of taxpayers to deduct R&D costs as ordinary business expenses (instead of requiring capitalization) and, if desired, to elect to amortize certain capitalized R&D costs over time (not less than 60 months). The bill also tightens rules related to the R&D tax credit interplay (via Section 280C) and makes technical conforming amendments to reference sections. The changes would apply to taxable years beginning after December 31, 2021 (i.e., retroactively affecting 2022 onward). In short, it seeks to encourage more immediate expensing of R&D and provide a parallel, optional amortization path, with guardrails to prevent double benefits with the R&D credit.
Key Points
- 1Restores deduction of research and experimental expenditures as ordinary expenses. Taxpayers may treat eligible R&E costs as deductible expenses in the year paid or incurred, rather than capitalizing them.
- 2Optional amortization pathway. For R&E costs that are capitalized but not charged to depreciation/depletion property, taxpayers may elect to treat them as deferred expenses and deduct ratably over at least 60 months, starting when benefits are first realized.
- 3Election mechanics. The deduction method can be adopted in the first year without Secretary consent, or later with consent. Once chosen, the method generally applies to all such expenditures unless the Secretary approves a change.
- 4Exclusions and scope. The provision does not apply to expenditures for land, land improvements, or mineral exploration costs; but certain depreciation-related allowances for related property are still treated as expenditures for the purposes of this section. Expenditures must be reasonable in amount to be eligible.
- 5Conforming tax-code updates. Adjustments to related code sections (41 and 280C) to reflect the changes, including how the R&D credit interacts with the deduction. If the credit determined under section 41 exceeds the deduction for the year, the excess reduces the amount chargeable to capital, and there are special rules for elections to reduce or offset the credit.
- 6Effective date. The amendments apply to taxable years beginning after December 31, 2021 (retroactive to 2022 and beyond).