Navigating Potential Tax Changes Under the Trump Administration: What Businesses Should Know About Sections 174 and 179D

How potential changes to Sections 174 and 179D could reshape tax strategies for R&D and energy-efficient construction.

By Samantha Wenden.

As President Trump begins his term in office, many in the business and tax communities are speculating on potential changes to the tax code, particularly regarding provisions like Sections 174 and 179D Deduction. These sections, which relate to research and development (R&D) expenses and energy-efficient commercial building deductions, respectively, have been areas of focus for prior administrations and could see significant updates in the coming year.

Section 174: R&D Expense Amortization?

Section 174 underwent a major shift starting in 2022, requiring businesses to amortize R&D expenses over five years for domestic research (15 years for foreign research) rather than deducting them in the year incurred. This change, implemented under the Tax Cuts and Jobs Act (TCJA), has increased the financial burden on companies investing in innovation.

With President Trump’s administration known for its focus on fostering business growth, there is speculation that we may see efforts to reinstate immediate expensing for R&D costs. Supporters argue that reverting to the pre-2022 rules could incentivize companies to invest more heavily in innovation, boosting the U.S. economy and maintaining global competitiveness. Any potential rollback or modification to Section 174 would likely require bipartisan support in Congress, making its timeline and feasibility uncertain.

Section 179D: Energy-Efficient Commercial Building Deduction

President Trump’s recent executive order, "Unleashing American Energy," outlines a comprehensive strategy to promote energy exploration and production on federal lands and waters, aiming to solidify the United States as a global energy leader. This policy shift may influence tax provisions related to energy efficiency, such as Section 179D of the Internal Revenue Code. Section 179D provides deductions for energy-efficient commercial building expenditures, encouraging sustainable construction and retrofitting.

Given the administration's focus on fossil fuels and traditional energy sources, there could be a reevaluation of incentives like Section 179D. Potential changes might include modifications to deduction limits or eligibility criteria, aligning with the broader energy strategy. However, any adjustments would require legislative action and are subject to the complexities of the policy-making process.

Looking Ahead

While it’s still early to predict the exact course of action President Trump’s administration will take, the potential for updates to Sections 174 and 179D is a topic worth monitoring. Businesses engaged in R&D or energy-efficient construction should stay informed about legislative developments, as changes to these provisions could significantly impact financial planning and tax strategies.

Engaging with EPSA USA, which has long-standing expertise helping firms with credits and incentives, can ensure proper documentation, optimized savings, and streamline the claiming process alongside your CPA firms.