If you are building software, scaling AI models, or engineering new products, the One Big Beautiful Bill Act (OBBBA) delivered a major upgrade to the R&D tax credit and the treatment of research costs. These changes unlock faster deductions, more cash flow, and retroactive opportunities for prior years.
What changed for the R&D tax credit in 2026?
The biggest change is the return of immediate expensing for domestic R&D. The outdated Section 174 rule requiring 5-year amortization is gone, and starting in 2025 you can deduct 100% of qualifying U.S. R&D costs in the year you incur them. There are three practical takeaways:
- Immediate deduction for U.S.-based R&D (starting in 2025): Deduct qualifying domestic research costs in the same year, putting cash back into operations rather than spreading it over five years.
- Catch-up deductions for 2022 through 2024: R&D expenses capitalized in those years can be deducted in a one-time 2025 catch-up or spread over 2025 to 2026, retroactively lowering taxable income.
- Amending past returns: You may amend 2022 to 2024 returns on Form 1040-X (or the entity equivalent) to apply the new rules and potentially claim refunds, and optimize Section 280C elections to balance deductions and credits.
What did not change?
Foreign R&D and the credit's core qualification standard stayed the same, while the payroll-offset eligibility expanded. The two points that matter most:
- Foreign R&D still requires 15-year amortization. Research performed outside the U.S. must still be spread over 15 years under Section 174, so domestic and foreign costs must be separated.
- More startups qualify for the payroll offset. The gross receipts limit rose from $5 million to $31 million, letting many more early-stage companies apply up to $500,000 of R&D credit against payroll taxes reported on Form 941.
Where do businesses get Form 6765 wrong?
The most common failure point is Section G of Form 6765, the redesigned section that requires detailed, business-component-level documentation. To claim the credit, you must clearly document:
- What each R&D project is focused on
- The qualified costs involved
- The new knowledge or technical advancement being pursued
Incomplete or vague Section G entries are a frequent reason claims are reduced or challenged. Translating engineering and software work into IRS-ready documentation is the difference between a defensible credit and a disallowed one. This work fits within broader business tax preparation.
How do you capture every available R&D credit?
A complete R&D engagement separates domestic from foreign costs, reviews prior years for catch-up opportunities, and documents each business component to the standard Section G now demands. The core steps are:
- Identify and separate domestic versus foreign R&D expenses
- Review 2022 to 2024 R&D costs for catch-up deduction opportunities
- Assess whether amending prior returns generates immediate refunds
- Strategize Section 280C elections to maximize the net benefit
- Confirm eligibility under the $31 million payroll-credit rule
- Prepare documentation for Form 6765 and Section G
- Coordinate with payroll providers for Forms 8974 and 941
For example, a software company that capitalized three years of cloud-infrastructure and machine-learning development costs may be able to combine a 2025 catch-up deduction with amended prior-year returns, converting previously deferred deductions into immediate cash savings, provided each project is properly documented.
Have questions about the 2026 R&D tax credit changes or prior-year catch-up opportunities? Contact TS CPA for a free consultation. We respond within the same day.