The R&D Deduction Is Back. The Credit Was Never Gone.

TL;DR

• Immediate expensing for domestic research costs is back under new Section 174A, generally effective for tax years beginning after December 31, 2024. That fixed a painful deduction problem. It did not touch the R&D credit.
• The Section 41 R&D credit is a separate, dollar-for-dollar reduction of tax on top of the deduction. Deducting your research costs and claiming a credit on them are two different benefits that can work together.
• With the deduction question settled and new reporting rules phasing in on Form 6765, 2026 is a year when getting the credit right, with documentation to support it, matters more, not less.

The news, in plain English

In July 2025, Congress created a new Section 174A of the tax code. For domestic research and experimental costs paid or incurred in tax years beginning after December 31, 2024, businesses can generally deduct those costs in full in the year incurred. That ended, for domestic costs, the five-year amortization requirement that applied from 2022 through 2024 and that made research spending unexpectedly expensive for many companies. Research performed outside the United States generally remains subject to longer amortization.

The IRS followed with procedural guidance in Revenue Procedure 2025-28, which spells out how to adopt the new treatment and provides transition options for domestic research costs from 2022 through 2024 that were capitalized and are still sitting on the books unamortized. Depending on the option elected, those remaining amounts may generally be recovered in the first tax year beginning after December 31, 2024, or spread over two years. A separate retroactive window that let certain smaller businesses amend 2022 through 2024 returns closed in July 2026, which is why so much of the remaining planning now runs through current-year returns.

If your company spends real money on technical work, whether that is writing software, engineering a custom automation cell, developing a new hull design, or working out an integration architecture no one has built before, this was genuinely good news. But we keep hearing one takeaway from owners that is wrong, and it is worth correcting.

The misconception: "the deduction is back, so the credit issue is settled"

The deduction and the credit are different things.

The Section 174A deduction reduces your taxable income. It restores, roughly, the treatment domestic research costs had before 2022. It is the baseline, not a bonus.

The Section 41 research credit is a separate benefit computed on your qualified research expenses. A credit reduces your tax bill dollar for dollar, which generally makes a dollar of credit worth more than a dollar of deduction. Whether specific work qualifies depends on the four-part test in Treasury Regulation 1.41-4, and on the specific activities, documentation, and facts.

Here is the part that matters for a $3M to $15M company: these two benefits can stack. Deducting your research costs does not use up your ability to claim a credit on the qualifying portion of them. The tax code does include a coordination rule, Section 280C, that prevents a full double benefit from the same dollars, and an election made on a timely filed return can simplify how that works. The mechanics are exactly the kind of thing a specialist and your CPA should work through together on your facts. The point is that the answer to "we already deduct our R&D costs, so why bother with a credit?" is that the deduction was never the credit.

Why this matters more in 2026, not less

Three reasons this is worth a conversation this year rather than someday.

First, the math is cleaner now. During the amortization years, some companies found the combined effect of the credit rules and the deduction rules confusing enough that they deferred the whole topic. With immediate expensing restored for domestic costs, the cash-flow picture of claiming the credit is easier to model and easier to explain to a board or a bank.

Second, catch-up deductions may be freeing up cash. Companies recovering unamortized 2022 through 2024 research costs under the transition options may see meaningfully lower taxable income in the current period. That makes this a natural moment to look at the full research picture, including whether qualifying activity has gone unclaimed.

Third, the reporting bar is rising. The redesigned Form 6765 asks for more detail about the research behind a credit claim, with the new Section G optional for tax year 2025 and generally mandatory for 2026 and beyond, with limited exceptions. Claims built on solid documentation were always the right approach. Now the form itself expects it.

What this looks like in practice

Nothing about the new law changes what qualifying research is. If your team was designing, testing, and iterating on technically uncertain work before the law changed, the same work is what a credit study looks at now. What changed is the environment around the claim: a friendlier deduction regime, a stricter reporting form, and, according to the IRS's own compliance messaging in recent years, continued attention to overstated claims.

That combination rewards the middle path. A claim that captures the credit your qualifying work actually supports, documented well enough to stand behind, beats both leaving the credit unclaimed and chasing a number the records cannot back up. Strata's initial assessment is $0, most engagements run on a typical 4 to 8 week timeline depending on complexity, and we work directly with your CPA so the credit, the deduction, and the coordination election land consistently on the return.

If you spent 2022 through 2025 assuming the R&D credit was more trouble than it was worth, the rules that made it feel that way have largely been rewritten. It may be worth a fresh look. Talk to us about whether your work may qualify.

This post is for informational purposes only and does not constitute tax or legal advice. Consult a qualified tax professional regarding your specific circumstances.