Based on the IRS guidance in Notice 2023-63, software development costs can be capitalized and amortized under Section 174, rather than being expensed. For tax years beginning after 2021, amended Sec. 174 requires capitalization 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 now requires mandatory capitalization of software development costs. Certain costs related to the development of new software programs and enhancements to existing software are required to be capitalized under Section 174, but costs incurred after the software is ready for sale or license to others, such as marketing, distribution, or customer support, are not required to be capitalized under Section 174.

Can software development costs be deducted under Section 174?

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