Section 174 R&D expensing came back in 2026. Under the One Big Beautiful Bill Act signed in July 2025, new Section 174A lets US companies deduct domestic research and development costs in full the year they spend them, reversing the 2022 rule that forced R&D to be amortized over five years. For a tech or AI founder, that is real cash back in the business this year. It is also the smaller half of the story. The R&D you just got to expense is the same R&D that builds your patents, trade secrets, and proprietary data, and that asset carries a valuation multiple the tax deduction never will.
Most CFOs will treat the win as one line on the tax return and stop there. The company that treats it as an asset-creation event instead walks into its next raise with a balance sheet the first company reports as pure expense.
What Section 174 R&D expensing means in 2026
It means domestic R&D is immediately deductible again. From 2022 through 2024, the Tax Cuts and Jobs Act required companies to capitalize specified research costs and amortize them over five years for domestic work and 15 years for foreign work. Software development was named explicitly, so almost every venture-backed tech company got hit. A startup that spent $2M on engineering could deduct roughly $200K in year one and owed tax on paper profit it never saw in the bank. Section 174A ends that for domestic spend starting with tax years after December 31, 2024. Foreign R&D still amortizes over 15 years, which quietly rewards keeping your research, and the IP it produces, onshore.
The catch-up deduction most founders will underclaim
Two groups get money back for the amortization years. Small businesses, defined as those under the roughly $31M average gross receipts threshold, can apply Section 174A retroactively to 2022 through 2024 by amending returns and claiming refunds. Every other company can accelerate its remaining unamortized domestic R&D, either all at once in the first tax year after 2025 or spread across 2025 and 2026. For a company that capitalized three years of engineering, that stranded deduction is often seven figures. The number is real, it is sitting on your prior returns, and it does not claim itself.
Why the R&D deduction is the small win
Here is the reframe. R&D is the only major line in your accounts that is a tax event and an asset-creation event at the same time. When you expense $2M of engineering, you capture a deduction worth about $420K in cash at a 21% rate. That is a one-time benefit. That same $2M also produced source code, model architectures, training data, and patentable inventions, and those do not expire with the tax year. Intangible assets now make up more than 90% of the market value of the S&P 500, up from around 17% in 1975, according to Ocean Tomo and Aon research. The tax code just made it cheaper to build the exact category of asset that defines enterprise value. Founders optimize the $420K and ignore the asset.
Beyond Elevation runs the second calculation. The deduction is your accountant's job. Valuing and capturing the IP your R&D produces, the patents, trade secrets, and licensable data, is a strategy job, and it is where the valuation multiple lives.
How to turn expensed R&D into a booked asset
Three moves, in order. First, run an R&D-to-IP audit: map what your engineering spend actually created and which of it is protectable as a patent, defensible as a trade secret, or licensable as data. Second, decide the protection route for each item before you disclose it, because the Section 101 environment in 2026 favors patenting the architecture and application layer while keeping model weights and training data as trade secrets. Third, put a value on it. A completed IP audit lifts a late-stage company's revenue multiple, and acquirers pay a premium for documented IP over the same technology left unexamined.
The sequence matters because the tax and asset decisions interact. Where you run the R&D changes both the deduction and the IP ownership. Onshore research is fully deductible and keeps the resulting IP in a jurisdiction you control. Offshore research amortizes slowly and can scatter ownership across entities in ways that wreck a diligence process later. In the UK the same spend can stack with the R&D relief and patent box regimes, which taxes IP-derived profit at a lower rate once the patent is granted. Your R&D footprint is now an IP strategy decision, not only a hiring one.
What to do before your next raise or exit
Claim the catch-up deduction with your tax advisor, then hand the asset question to someone who values IP for a living. The founders who lose money here bank the refund, keep booking R&D as pure cost, and arrive at diligence with a portfolio no one has valued. Beyond Elevation gives tech and AI founders FT100-grade IP strategy without a full-time hire, turning the R&D you already expensed into an asset your cap table can see. The deduction is this year's cash. The IP is the compounding asset, and it is the one buyers underwrite.
FAQ
What is Section 174 R&D expensing in 2026?
Section 174 R&D expensing in 2026 is the rule, restored by Section 174A under the One Big Beautiful Bill Act, that lets US companies deduct domestic research and development costs in full in the year incurred rather than amortizing them over five years. It applies to tax years beginning after December 31, 2024. Foreign R&D still amortizes over 15 years.
Can I get a refund for the R&D I had to amortize from 2022 to 2024?
Often yes. Small businesses under roughly the $31M average gross receipts threshold can apply the restored expensing retroactively to 2022 through 2024 and amend returns for refunds. Larger companies can accelerate their remaining unamortized domestic R&D over the first tax year after 2025 or across 2025 and 2026. For a company that capitalized several years of engineering, the catch-up deduction is frequently seven figures.
How does R&D expensing connect to IP value?
Every dollar of R&D you expense also produces intellectual property: patents, trade secrets, source code, and proprietary data. The deduction is a one-time cash benefit. The IP is a durable asset that carries a valuation multiple, and it is the category that now accounts for more than 90% of large-company enterprise value. Expensing lowers the cost of building that asset. It does not capture the value automatically.
Does foreign R&D still have to be amortized?
Yes. The One Big Beautiful Bill Act restored immediate expensing only for domestic research. Foreign R&D continues to amortize over 15 years, which makes onshore research both more tax-efficient and cleaner for IP ownership.
Who should own the R&D-to-IP decision?
Your tax advisor owns the deduction. The decision about what to patent, what to keep as a trade secret, and how to value the resulting portfolio is a strategy role better suited to a fractional IP strategist or CFO who values intangibles, because that is where the enterprise-value multiple is won or lost.
Turn the R&D you just expensed into an asset your cap table can see. Beyond Elevation gives tech and AI founders FT100-grade IP strategy without a full-time hire. Book a consultation and find the asset hiding inside your R&D budget.