KPMG report: New section 174 mandatory capitalization regime, issues for engineering and construction industry
A discussion of issues presented by the TCJA provision requiring mandatory capitalization of section 174 costs for taxpayers
New section 174 mandatory capitalization regime
Section 174 describes the tax treatment for costs of developing or improving a product or process used in a taxpayer’s trade or business, otherwise known as research and experimental (R&E) costs. Under Pub. L. No. 115-97, commonly referred to as the Tax Cuts and Jobs Act (TCJA), R&E costs incurred in tax years beginning after December 31, 2021, must be capitalized and amortized over five years if the research is performed in the United States and over 15 years if performed outside of the United States.
Read a February 2023 report [PDF 180 KB] prepared by KPMG LLP: What’s News in Tax: The New Section 174 Mandatory Capitalization Regime: Implementation Considerations for Engineering and Construction Companies, which discusses some of the issues presented by the TCJA provision requiring mandatory capitalization of section 174 costs for taxpayers within the engineering and construction (E&C) industry.
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