R&D Expensing and Cost Seg Studies: 2025 Updates After OBBBA

Written By: Sandra Bullock

If you own or help run a business, you may have heard that the One Big Beautiful Bill Act (“OBBBA”) is “bringing back expensing” for research and development and making 100% bonus depreciation permanent. That’s true—but it’s not the whole story.

The new rules create real opportunities for optimizing your tax position. They also introduce new elections, method changes, and state-level quirks that can trip up well-intentioned taxpayers.

This article will walk you through:

• What actually changed for R&D under new §174A
• How OBBBA makes cost segregation and 100% bonus depreciation more powerful
• Why state conformity matters
• A simple 90-day action plan to get in front of these changes

Our goal: help you turn a complex bill into a practical, big-picture strategy.

R&D After OBBBA: Optionality Is Back (With Fine Print)

Under prior law, businesses were required to capitalize and amortize domestic R&D costs over five years (and foreign research over 15 years), which created a cash-flow drag for many companies.

OBBBA changes that by introducing new §174A, which generally:

• Restores immediate expensing of domestic research and experimental (R&E) expenditures for tax years beginning after December 31, 2024.
• Still requires foreign R&D to be capitalized and amortized over 15 years.
• Allows taxpayers to elect to capitalize domestic R&D costs and recover them over 5–10 years instead of expensing them immediately, creating new planning flexibility.

On top of that, there are transition rules for 2022–2024:

• Eligible small businesses (generally under about $31 million in average annual gross receipts) may be able to amend earlier returns or accelerate unamortized R&D into 2025 or 2026, rather than waiting out the full amortization period. Note: the option to amend must be exercised by July 4, 2026.

Should You Expense or Amortize Under §174A?

At first glance, it’s tempting to say, “Of course we’ll expense everything.” In many cases, that’s the right move. But new §174A gives you options for domestic R&D, and those choices affect more than this year’s refund.

Here are some situations where slowing down deductions may make sense:

• You’re expecting large future gains (for example, a sale of stock that may qualify for the expanded QSBS exclusion under §1202), and you want to manage taxable income more evenly over time.
• You’re close to limits on interest deductibility under §163(j) and want to preserve more adjusted taxable income in certain years.
• You operate in multiple states and want to avoid having a large federal deduction in a year where state rules don’t match (more on that below).

Most of these decisions are implemented through accounting method changes, not just a box on a form. Recent tax and accounting guidance emphasizes modeling the impact of 174A choices over several years, not just the next return.

Cost Segregation After OBBBA: Same Tool, Bigger Engine

OBBBA did not rewrite the cost segregation rules themselves. What it did do is make cost segregation more valuable by restoring and making permanent 100% bonus depreciation on qualifying property.

In broad terms:

• For property acquired and placed in service on or after January 19, 2025, OBBBA permanently restores a 100% bonus depreciation allowance.
• Cost segregation studies identify portions of a building that can be treated as shorter-lived property (e.g., 5-, 7-, or 15-year property), which is typically eligible for bonus depreciation.

But don’t forget recapture

The trade-off is recapture if you sell the building:

• When a property is sold, prior bonus depreciation on reclassified components can be recaptured as ordinary income, which may narrow the long-term benefit if your hold period is short.
• This doesn’t necessarily mean you shouldn’t do cost seg; it means your advisor should align the strategy with your expected hold period and exit plans.

Federal vs. State Treatments

OBBBA is a federal law. States don’t automatically fall in line. Some states automatically conform to the Internal Revenue Code as of a specific date; others “decouple” from certain sections or adopt changes only if they pass separate legislation.

What this can mean in practice:

• You may fully expense domestic R&D at the federal level but still need to amortize it for one or more states.
• State rules on bonus depreciation and §179 expensing may not match OBBBA’s permanent 100% bonus.
• Pass-through owners living in different states may see very different state-level outcomes from the same OBBBA-driven strategy.

For Utah-based businesses with operations or owners in multiple states, it’s important to map:

• Where your R&D and facilities are located
• Which states conform to the new federal rules, and
• How those states treat bonus depreciation and §174A going forward

A 90-Day Action Plan for R&D and Cost Seg Under OBBBA

If you haven’t started planning yet, here’s what the next 90 days can look like.

• Schedule a discovery call so we can understand your R&D activity, recent or planned building projects, and where you operate or have owners.
• We’ll perform a complimentary, high-level analysis of your prior returns, fixed asset schedules, and R&D/project data to spot opportunities under §174A, transition relief, and cost segregation.
• We’ll share a clear value estimate and recommended path forward including when to expense vs. amortize R&D, which projects are strong cost seg candidates, and how to time elections around your cash flow, delivering final calculations in early 2026 so you’re in a good position well before the July 4, 2026 deadline.