US R&D Tax Credit (§41) + §174 Expensing (2026)

Compare the §41 Regular Credit against the Alternative Simplified Credit (ASC), elect the QSB payroll-tax offset, and model the OBBBA-restored §174 immediate expensing regime — including the 2022–2024 retroactive catch-up that undoes the five-year amortization software businesses suffered through.

Guidance, not advice. This calculator runs the rules as published, it doesn't assess your circumstances. Your actual tax may be affected by factors it doesn't cover (deductions, credits, filing status nuances, state-specific adjustments). Always seek financial or tax advice from a qualified CPA, Enrolled Agent, or tax attorney, or contact the IRS. Read our editorial scope →

OBBBA restored §174 immediate domestic expensing

The One Big Beautiful Bill Act (July 2025) permanently restored full first-year expensing for domestic research and experimental (R&E) expenditures, ending the 5-year amortization regime that the TCJA imposed from 2022. If you capitalized domestic R&E costs for 2022–2024, the residual balance can be deducted on your 2025 return via the prescribed accounting-method change. Foreign R&E remains on a 15-year straight-line amortization.

Qualified research expenditures

Wages for qualified services, supplies consumed in research, 65% of US contract research, and 100% of cloud-computing expenses for QRE projects.

Current-year QRE

Avg gross receipts, prior 4 yrs

Fixed-base % (cap 16%)

Default 3% for start-ups (no QRE before 1984 or first 5 years).

State

Prior-year 1 QRE

Prior-year 2 QRE

Prior-year 3 QRE

Elect QSB payroll-tax offset (≤$5M receipts, ≤5 yrs old)

§41 credit — recommended: Regular Credit

Pick whichever method produces the larger credit; the election is annual and revocable until the return is filed.

Regular Credit (20%)

$120,000

Base amount: $600,000 — credit on QRE above base.

ASC (14%)

$119,000

Base = 50% × average QRE of prior 3 years.

§174 R&E expensing (2026 OBBBA regime)

Domestic R&E spend (immediate expense)

Foreign R&E spend (15-yr amortization)

2022–2024 capitalized domestic balance (retroactive catch-up)

Unamortized residual of domestic R&E you capitalized for tax years 2022–2024. Deductible on the 2025 return via the prescribed §446 accounting-method change.

Domestic — expensed in full$1,000,000

Foreign — 15-yr amortization, this year$0

Current-year §174 deduction$1,000,000

State R&D credit — California
15.0%

15% on QRE above base + 24% basic-research credit. Carryforward indefinite, no refund.

State R&D credit$90,000

Combined federal + state credit value$210,000

Tax year 2026 · USD · OBBBA permanent law

Formula: Regular Credit = 20% × (current QRE − max(fixed-base% × avg gross receipts 4 yrs, 50% × current QRE)). ASC = 14% × (current QRE − 50% × avg QRE prior 3 yrs); 6% × current QRE if no prior QRE. QSB payroll offset capped at $500,000 per year.

Assumptions

QRE definition follows §41(d): qualified wages, 65% of US contract research, supplies consumed in research, and §41(b)(3)(B) cloud computing.
Fixed-base percentage is statutorily capped at 16%; start-ups default to 3%. Existing companies must use their 1984–88 base or §41(c)(3)(B) start-up phase-in.
OBBBA (signed July 4, 2025) permanently restored §174(a) immediate expensing for domestic R&E, retroactive relief for 2022–2024.
Foreign R&E remains 15-year straight-line under §174(b) — OBBBA did not repeal foreign capitalization.
QSB payroll offset (§41(h)) requires ≤$5M current-year gross receipts AND no gross receipts >5 years before the credit year.
State credits are top-line incremental rates; many states layer caps, refundability rules, transferability provisions, and base alternatives not modelled here.
This calculator is an estimate for planning. Final §41 credit substantiation requires contemporaneous technical narratives and time-tracking under Cohan/Suder doctrine.

Estimates only — not tax advice. Brackets, deductions and thresholds reflect the locked 2026 federal configuration. State amounts use each state's posted 2026 top-line rules and may differ from a full state-form computation. Always confirm complex situations with a qualified CPA, EA, or tax attorney.