Can software development costs be deducted under Section 174?

Based on the IRS[1] guidance in Notice 2023-63, software development costs[1] can be capitalized and amortized under Section 174[1], rather than being expensed. For tax years beginning after 2021[2], amended Sec. 174 requires capitalization[2] and amortization of software development costs, with recovery through amortization over a specified period. The specific amortization period for software development costs under amended Sec. 174 is not provided in the given text. Additionally, the Tax Cuts and Jobs Act[1] now requires mandatory capitalization of software development costs. Certain costs related to the development of new software programs[4] and enhancements to existing software[4] are required to be capitalized under Section[1] 174, but costs incurred after the software is ready for sale or license to others[4], such as marketing, distribution, or customer support, are not required to be capitalized under Section 174.