What Qualifies for Section 174 R&E Expenses?

Categories of Expenses subject to Section 174

• Certain R&E expenses must be capitalized under Section 174. These include:

• Salaries and wages for employees engaged in, supervising, or supporting research activities.

• Supplies and materials used in the research process.

• Costs associated with obtaining patents for a product or process developed through research activities.

• Overhead expenses that can be allocated to research activities.

• Contract research expenses if a third party conducts the research on a company’s behalf.

Categories of Expenses excluded from Section 174

Please note, not all R&E expenses can be deducted under Section 174. Here are a few examples:

• Costs for land

• Depreciable properties

• Research conducted after the beginning of commercial production, marketing research, quality control, and

• Funded research

How the R&D Credit is impacted by the Section 174 legislation changes

Claiming credits under Section 41 (R&D Credit) is irrelevant in determining whether an expenditure is an R&E expense subject to the new requirement to capitalize and amortize them.

All businesses, regardless of whether they choose to claim an R&D tax credit under Section 41, are required to comply with the new Section 174 requirements.