The R&D Tax Credit for Construction, Engineering and Architecture Firms

Who qualifies

The R&D Credit isn't limited to laboratories. Firms in the built environment regularly meet the Four-Part Test when they design something new or improved and have to work out how to achieve it. Typical claimants include:

Activities that often qualify

• Designing structural systems for unusual loads, spans, sites or seismic conditions
• Developing custom HVAC, plumbing or electrical designs to meet demanding performance or efficiency targets
• Energy modeling and iterating designs to hit sustainability or certification goals
• Developing new construction methods, prefabricated or modular assemblies, and alternative materials
• Evaluating multiple design alternatives through calculations, modeling, simulation or mock-ups

Applying well-established designs and building codes without technical uncertainty doesn't qualify. The key is showing that, at the outset, the method, capability or appropriate design wasn't known.

The Funded Research question

For service firms, the most important issue is whether the research was funded by the client, because Funded Research is excluded. Research is generally not funded when both of these are true:

• You bear the financial risk: your payment depends on successfully delivering the result, as is typical of many fixed-price contracts, rather than being due regardless of outcome.
• You retain substantial rights: you keep the right to use the knowledge, designs or methods you developed in your own business.

Time-and-materials or cost-plus arrangements where you're paid regardless of success usually point the other way. Contract terms matter, so we review them project by project.

Which costs count

• Wages of Engineers, designers, architects and project staff for time spent on qualifying design and testing work
• Supplies used in prototypes, mock-ups and tests that aren't part of the delivered building
• Generally 65% of amounts paid to US contractors and consultants who perform Qualifying Research for you

Records to keep

• Design iterations, calculations and drawing revisions showing the alternatives you evaluated
• Project meeting notes, RFIs and correspondence describing technical problems and how they were solved
• Contracts, so the Funded Research position can be supported
• Time records or reasonable estimates tying staff time to projects

Many states offer their own R&D Credits on top of the federal credit, so the combined benefit can be significant for firms working across several states.

Frequently asked questions

This article is general information, not tax, legal or accounting advice. Tax rules change and outcomes depend on your specific facts; speak with a qualified tax professional before acting.