Section 174 Capitalization Cash Impact Calculator

Understand how Section 174 capitalization changes your cash taxes. Enter domestic and foreign qualified research spend, your marginal tax rate, and the year of the amortization schedule you want to inspect. The calculator compares the allowed deduction against immediate expensing, sizes the deferred write-off, and shows the incremental tax you owe plus the remaining amortizable basis.

Total U.S.-sourced R&D placed in service this tax year that must be amortized over five years.
R&D performed outside the United States subject to the 15-year amortization rule. Defaults to $0 when left blank.
Combined federal and state marginal tax rate applied to the incremental taxable income.
Select which amortization year to review (1 uses the first-year deduction, 6/16 capture the final catch-up months). Defaults to 1 when blank.

For planning only — confirm Section 174 treatment, capitalization periods, and tax rates with your corporate tax advisor before filing.

Examples

  • $1,200,000 domestic, $300,000 foreign, 24% tax, year 1 ⇒ Year 1 Section 174 deduction: $130,000.00 USD ($120,000.00 domestic, $10,000.00 foreign). Immediate expensing baseline: $1,500,000.00 USD, so $1,370,000.00 USD of deduction is deferred this year. Tax increase at 24.00%: $328,800.00 USD in additional current liability. Remaining amortizable basis after year 1: $1,370,000.00 USD ($1,080,000.00 domestic, $290,000.00 foreign).
  • $950,000 domestic, $0 foreign, 21% tax, year 3 ⇒ Year 3 Section 174 deduction: $190,000.00 USD ($190,000.00 domestic, $0.00 foreign). Immediate expensing baseline: $950,000.00 USD, so $760,000.00 USD of deduction is deferred this year. Tax increase at 21.00%: $159,600.00 USD in additional current liability. Remaining amortizable basis after year 3: $475,000.00 USD ($475,000.00 domestic, $0.00 foreign).

FAQ

Which analysis year should I use?

Pick the tax year you are modeling. Year 1 shows the initial 10% deduction, years 2-5/15 show the level annual amounts, and the final year captures the mid-year catch-up.

Does the result include state credits or 174(f) elections?

No. Layer in any state incentives, cost-sharing arrangements, or capitalization elections separately if they change the taxable base.

How are software development costs treated?

Qualified software development costs follow the same Section 174 amortization schedule. Enter them alongside other domestic or foreign R&D spend as appropriate.

Can I model multiple tax rates?

Run the calculator once for federal and again for blended state/local rates if you want to isolate each cash impact, then combine the dollar results in your tax workpaper.

Additional Information

  • Domestic R&D amortizes over six tax years using the mid-year convention (10%, then four 20% years, and a 10% tail).
  • Foreign R&D amortizes over 16 tax years at 3.33% in year one, 6.67% for years two through fifteen, and a 3.33% tail year.
  • Deferred deduction equals the immediate expensing baseline minus the amortization allowed in the analysis year.
  • Tax drag multiplies the deferred deduction by your marginal rate to highlight the cash hit in the modeled year.

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