The One Big Beautiful Bill Act (OBBB) has introduced several key changes to both businesses and individuals.  Several of the changes relate specifically to the high-tech industry and are designed to stimulate economic growth and encourage investment in research and development (R&D).  The provisions below are of particular interest to this industry.

Research and Experimental (R&E) Expenditures (Section 174):  Businesses are once again permitted to immediately deduct domestic R&E expenditures paid or incurred in tax years beginning after December 31, 2024. However, foreign-based R&E expenditures must continue to be capitalized and amortized over a period of 15 years. Additionally, expenditures incurred for the acquisition of depreciable property used in research and development activities are not eligible for expensing under this section.

Qualified small businesses are allowed to make an election to retroactively expense any previously capitalized domestic R&E expenditures. This election must be made by July 4, 2026. For these purposes, a qualified small business is defined as one whose average annual gross receipts do not exceed $31 million for the three preceding tax years. This retroactive election may be executed either by amending previously filed tax returns or by filing a change in accounting method with the 2025 tax return which will run all previously capitalized R&E expenditures as expenses on that return.

Lastly, any business, even those which do not meet the qualified small business criteria, may make an election to deduct any remaining unamortized domestic R&D expenditures over a period of either one or two years, beginning with the first tax year that starts after December 31, 2024.

Bonus Depreciation:  OBBB brings back 100% bonus depreciation for qualified property placed in service after January 19, 2025. The Act makes 100% bonus depreciation permanent, with no end dates or phase-out periods. Prior to enactment, bonus depreciation was reduced to 40% in 2025 and 20% in 2026.

For fixed assets placed in service after December 31, 2024 but before January 20, 2025, the applicable bonus depreciation rate is 40%, as provided for under the prior law.

Section 179 Expensing:  The dollar limitation for Section 179 expensing increases from $1,250,000 under the old law to $2,500,000 effective for property placed in service in tax years beginning after December 31, 2024. This limitation is reduced by the amount by which the total Section 179 property placed in service during the tax year exceeds $4,000,000 ($3,130,000 under old law).

These increases are permanent, and the limitations will be adjusted annually for inflation for tax years beginning after 2025.

Qualified small business stock (QSBS) (Section 1202):  Expands the capital gains exclusion for qualified small business stock (QSBS) with a tiered benefit: 50% exclusion after 3 years, 75% after 4 years, and 100% after 5 years. The maximum exclusion per issuer rises from $10 million to $15 million, and the gross assets cap for eligible companies goes from $50 million to $75 million for stock acquired after July 4, 2025. The new QSBS provisions provide growing tax advantages for longer holding periods but importantly give investors the opportunity to benefit earlier, making the incentive more flexible and accessible.

In addition, the amount of gain exclusion has increased from the greater of 10 times stock basis or $10,000,000 (for QSBS acquired prior to July 4, 2025) to $15,000,000 (for QSBS acquired after July 4, 2025), adjusted each year thereafter for inflation.  These limits are subject to certain reductions.

Finally, for purposes of determining if a company qualifies as a qualified small business, the gross asset test has increased from $50,000,000 to $75,000,000 for stock issued after July 4, 2025.

See more on Section 1202. 

At Snyder Cohn, we’re here to help you navigate these changes, adjust your strategies as needed, and identify new opportunities in the evolving tax environment.

 

By: Cheryl Heusser and Joe Bishop