Comment by rayiner
6 months ago
In general, the tax code does not provide immediate deductions for purchase of assets that generate recurring income. Instead, the cost of the asset must be depreciated over time. The provision you point to excludes land, physical property, and software from treatment as R&D expenditures. Because all of those things generate recurring revenue over time. It’s specifically listed in that statute, but it’s not treated as a “special case.”
E.g. If a whiskey maker pays to build a distillation system, it can’t deduct that cost immediately. Because that’s a capital asset that generates recurring revenue. Software is properly treated the same way.
Historically, Section 174 allowed everyone to opt in or out of R&D amortization. That amortization is required from anyone for R&D is new.
Further, software is the only type of R&D explicitly called out as required to count as R&D. Which means it should be taken as a given that most other industries are finding ways to count their R&D as anything else, while we've been intentionally given the short straw for some reason by having our specific field be the only one identified by name so as to leave no wiggle room. I'd say that definitely counts as being a special case. The section is even labeled "Special Rules".