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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and local
levels. We are a 501(c)(3) nonprofit
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and Development Expenses
Under the Tax Cuts and Jobs Act
• Currently, businesses can choose to fully expense the costs of research and
development (R&D); that is, they can deduct the costs of R&D from their
taxable income in the year that those costs occur.
• Expensing is the proper tax treatment of investment and other business
costs, as it prevents a firm’s profits from being overstated in real terms.
This lowers the cost of investment. Requiring a firm to amortize business
costs over a number of years overstates the firm’s taxable income, reducing
business capital investment.
• Starting in 2022, the Tax Cuts and Jobs Act (TCJA) will require companies
to amortize their R&D costs over five years, instead of deducting them
immediately each year. This change will raise the cost of investment,
discourage R&D, and reduce the level of economic output.
• Canceling amortization of R&D costs would result in a 0.15 percent larger
economy, a 0.26 percent larger capital stock, 0.12 percent higher wages, and
30,600 full-time equivalent jobs.
• Canceling amortization would reduce federal revenue by $119 billion on a
conventional basis between 2019 and 2028, and by $99.2 billion on a dynamic
basis. In the long run, it would reduce federal revenue by $8.43 billion each
year, in 2019 dollars.
• The costs of canceling amortization could be offset by eliminating two tax
expenditures: the credit union exemption and the rental loss exemption.