Section 174 and 174A (research expenditures)

The 2017 tax law required, beginning with tax years starting after 2021, that specified research and experimental expenditures be capitalized and amortized over five years for domestic research and fifteen years for foreign research, instead of deducted immediately. For a loss-making biotech that mostly meant larger net operating losses deferred into future years and, for a few companies with revenue, unexpected cash taxes.

Legislation signed in July 2025 created Section 174A, which restores immediate deduction of domestic research expenditures for tax years beginning after December 31, 2024. Foreign research remains subject to fifteen-year amortization. Smaller companies, generally those with average gross receipts of $31 million or less, may elect to apply the change retroactively to 2022 through 2024 by amending returns, and other taxpayers may elect to deduct the remaining unamortized domestic amounts over one or two years.

The elections are not automatic, interact with the research credit, and affect the ASC 740 provision and the NOL disclosure. Every biotech should have its tax advisor confirm which election was made and how the remaining capitalized balance is being treated.