In 2022, a change to Section 174 of the tax code turned a straightforward incentive into a cash flow trap. Firms that had been immediately deducting R&D expenses suddenly had to amortize them over five years. The credit didn’t go away, but the economics got inverted. Some firms that expected a tax benefit got a tax bill instead.

Congress has now reversed course. Section 174 amortization for domestic R&D is gone. And for firms that were hit hardest, there’s a window to go back and recover what was overpaid.

What just changed

Starting in 2025, U.S.-based R&D expenses are immediately deductible again, the same structure that existed before 2022. The big shift for smaller firms (under $31 million in gross receipts) is the ability to amend 2022, 2023, and 2024 returns retroactively.

That’s three years of tax filings that may have been structured around rules that have now been repealed. If your firm capitalized and amortized R&D expenses during those years, you likely overpaid. The corrected return could generate a meaningful refund.

The statute of limitations on 2022 amendments will close in 2026 depending on your original filing date. That’s not a lot of runway.

Who this actually affects

If you’re in design, engineering, or construction and you’ve been investing in any of the following, you very likely have qualifying R&D activity:

Custom design work that involves technical problem-solving. Developing a structural approach, designing a novel MEP system, creating a proprietary process for a specific project type. These are all candidates.

Internal tools and software. Firms that have built their own estimating tools, project management workflows, or data systems have almost certainly created qualifying R&D expenses.

Construction innovation. Design-build firms, firms experimenting with prefabrication or modular construction, firms developing new delivery methods, all of this can qualify.

The IRS definition is broader than most people assume. It’s not about whether your work looks like laboratory research. It’s about whether your work involved technical uncertainty, systematic experimentation, and the development of something new or improved. For most firms doing complex, custom work in the built environment, that’s a yes.

The situations where this gets interesting

You never claimed the credit before. If your firm qualifies but has never filed for the R&D credit (maybe it seemed too complicated, maybe you assumed you didn’t qualify) the amended return process now gives you access to credits you earned but didn’t claim, plus the corrected deduction treatment.

You stopped claiming the credit after 2022. Many firms found the credit wasn’t worth the effort once amortization made it less lucrative. Now the economics have changed. Restarting makes sense, and retroactive amendment may recover the gap years.

You claimed the credit after 2022 without capitalizing costs correctly. This is a compliance risk. If your filings treated R&D expenses the old way while also claiming the credit, there’s potential IRS exposure. Cleaning this up proactively, before audit scrutiny increases, is the lower-risk path.

You’ve been following the rules correctly. Even if your filings were compliant, you may have left money on the table by not optimizing the calculation. The corrected rules give you a larger base to work from.

The payroll tax offset for startups

One provision worth calling out separately: firms under five years old and under $5 million in revenue can apply the R&D credit against payroll taxes, up to $500,000 annually.

If you’re a young firm with no taxable income yet, this is one of the few ways to get immediate cash value from R&D investment. You don’t have to wait for profitability to capture the benefit.

What to do now

This isn’t a task to hand to your general accountant and assume it’ll get handled. Most generalist CPAs aren’t running R&D credit optimization proactively. The firms that specialize in this have a much clearer picture of what qualifies, how to document it, and where the audit risk concentrations are.

If your gross receipts are under $31 million and you’ve been doing qualifying work since 2022, a conversation with a specialist is worth an hour of your time. The worst case is you confirm you’ve captured everything available. The better case is you find a meaningful refund opportunity that closes in 2026.

The R&D credit was designed to reward firms that invest in building better ways to do things. If your firm is doing that work, make sure you’re collecting what you’ve earned.