Tell HN: Help restore the tax deduction for software dev in the US (Section 174)

It has nothing to do with 'stupidty'. There are many other stupid things in the world - many much more consequential than tax policy and which are also discussed on HN. Where is the lobbying for those issues?

I support this and am willing to help.

Believing in corruption doesn't have to be in the same league as believing the moon landings were faked. I don't particularly think this tax thing is something other than short-sightedness, but there is a tendency among some to dismiss even blatant cases of corruption.

Believing in fake moon landings requires believing in a level of competence I don't think exists in large organizations, but the same applies to believing there is no corruption or backroom deals, which are exposed all the time and seemingly rarely punished.

Unlike a building—where you might find one for sale and simply buy it—most companies don’t "buy one software" from a vendor and amortize it like a purchased asset. Instead, they hire full-time teams to build, maintain, and evolve software as a core, continuous function of the business. And most companies don’t "sell one software" either—they lease it to others, as software-as-a-service.

In your analogy, when a company constructs and sells a building, labor costs are deductible as part of the cost of goods sold. Only the profit—when the finished product is sold—is taxable. But under the new Section 174 rules, software R&D labor is treated like the purchase of a capital asset, even though the company is leasing a service, not selling a final, tangible product.

The flaw? Software isn’t a static, finished asset you walk away from. It’s a living system. One update might fix a bug, introduce a feature, and improve long-term architecture all at once. Is it maintenance? Innovation? Infrastructure? The answer is usually “all of the above.” So how does anyone report that cleanly on a tax form? What’s the IRS’s standard test for sorting that out?

Before TCJA, some companies may have stretched R&D definitions to claim Section 41 credits. But after the TCJA change, the incentive flipped. Now, companies are penalized for doing real R&D—the very thing we should be encouraging. Startups are now paying painfully high tax bills simply for building something they cannot lease out en masse yet.

We should want to incentivize invention, not suppress it. We need more startups, not fewer. Software—especially with generative AI—is one of the few options for us left that can create new markets, expand GDP, and drive compounding national growth. The upside is limitless. This is hammering our economy and it’s strangling startups at the exact moment we need them most.

Congress, do the right thing; restore the rules we had pre-TCJA.

Timeline:

- 1981: Section 41 introduced — provides tax credits for qualified R&D activities.

- Pre-2018: Under Section 174, R&D expenses (including software) were fully deductible; Section 41 credits could be claimed.

- 2017 (Dec): TCJA passed by the 115th Congress and signed by President Trump; Section 174 expenses to be amortized over 5 years starting in 2022.

- 2022: Amortization rule takes effect. Companies must now capitalize and amortize R&D expenses.

- 2025: Section 174 amortization remains in effect; Section 41 credits still exist but now come with a steep tradeoff.

"Other payroll employees" is doing a lot of lifting.

The question is really, payroll is made up of builders, vs nonbuilders.

Are devs different from other builders? The dirty secret is that they are not.

Ford engineers, P&G food researchers, and architect salaries are capitalized just like Software development costs.

But, in the case of software development, only those builders are getting a nice subsidy.

A world where we treat all workers as expenses is not likely since it means the end of US GAAP. So, we must treat all builders like builders . There shouldn't be special favors for some any specific builder group.