Section 174

Expenditures for land and depreciable property are not allowed under section 174 although in certain cases depreciation may be treated as a section 174 expense.

Section 174. In the case of the taxpayer s first 2 taxable years beginning within 2 years after the date of the enactment of this act aug. Section 174 requires that r e expenses be incurred in connection with a trade or business in order to be currently deductible. It should be highlighted that taxpayers incurring software development costs may also have negative consequences beginning after 2021.

In general the amount of an expenditure for research or experimental activities is reasonable if the amount would ordinarily be paid for like activities by like enterprises under like circumstances. The new section 174 adds a specific provision which defines software development as r e essentially voiding expense treatment under rev. 1954 which are paid or incurred in such year for research activities conducted in the united states shall be allocated or apportioned to sources within the united states.

13 1981 all research and experimental expenditures within the meaning of section 174 of the internal revenue code of 1986 formerly i r c. The treatment of expenses for the development of tangible property has however always been nebulous and subject to various interpretations. Amortization of research and experimental expenditures amounts paid or incurred in taxable years beginning after 2021.

Section 174 generally allows taxpayers to deduct r e expenditures as they are paid or incurred or to treat them as deferred expenses that can be amortized of a period of no less than 60 months. This requirement is easy to satisfy. Section 174 applies to a research or experimental expenditure only to the extent that the amount of the expenditure is reasonable under the circumstances.

Depreciation is not a qre under section 41.