The U.S. architecture industry is expected to generate $65.2 billion in revenue in 2026. That steady growth is a reflection of the industry's ability to adapt and innovate. Architects are constantly exploring new materials and smarter technologies that allow them to design more sustainable buildings and deliver projects faster.

The U.S. government has developed and implemented several tax policies over the years to support this kind of innovation. In 1954, the addition of Section 174 to the federal tax code meant businesses could deduct qualified expenses for research and development in the year they were incurred. In the early 1980s, Congress enacted the R&D tax credit to allow companies to offset income taxes. The Protecting Americans from Tax Hikes (PATH) Act of 2015 extended the tax credit to include provisions for small businesses and startups. In 2022, the Inflation Reduction Act doubled that benefit — qualified small businesses (those with under $5 million in gross receipts, within five years of their first revenue) can now offset up to $500,000 in payroll taxes, split between Social Security and Medicare, up from the original $250,000 cap

While policymakers likely had technology companies in mind when they developed the policy, the tax benefits have become highly valuable to the architecture industry where growth is tied closely to innovation. Any costs directly related to resolving genuine technical uncertainties can qualify for the tax credit, provided they're correctly documented. Examples of qualifying architectural activities include developing unique energy-efficient designs, experimenting with low-carbon or advanced materials, and developing strategies for environmental resilience.

For many architecture firms, these R&D tax credits are an extraordinary financial opportunity hiding in plain sight. By integrating these tax benefits into their accounting strategies, architects could save hundreds of thousands of dollars.

The tax code behind the opportunity

Section 174, written into the tax code in 1954, provided companies with clarity in the treatment of R&D spend. This provision allowed a 100% deduction of their qualified research and development expenses or the choice to capitalize the costs. That changed in 2022 as a result of legislation passed five years earlier. Instead of deducting all research expenses in the year they were incurred, companies could only capitalize and amortize those domestic costs over five years — or over fifteen years for costs incurred outside of the U.S. The impact of this change not only limited deductions for innovative businesses, but also put many companies in a difficult tax-paying position as a result.

Even before the policy went into effect, the negative impact it would have on research and innovation was clear. Federal policymakers moved quickly to attempt to correct the issue. Several bills were introduced in Congress between 2018 and 2025, including provisions to restore the immediate deduction of research and experimentation expenses for the tax year 2022 and after. None of the bills, however, were enacted into law.

Legislation passed in 2025 did eventually lead to change. The addition of section 174A to the tax code saw the permanent reinstatement of full tax deductions for domestic spending starting with the 2025 tax year. This change will benefit innovators in a wide range of industries, as they reduce their taxable income and receive savings related to both the deduction and to R&D credits. Architecture firms shouldn’t be an exception, as long as they can accurately categorize their research expenses.

How architecture firms can take advantage

Adapting your financial strategy to accommodate a niche tax policy might seem overwhelming, but it only requires a little extra effort. Categorizing expenses is straightforward, and specialized tax companies can help architecture firms prepare all the information they need in advance of their annual filing deadline.

Architecture firms can include three types of expenses in the calculation for the federal research credit:

  • Wages: Paid to employees who are based in the U.S. and involved in R&D activities. Qualifying roles might include designers, drafters, and project architects.
  • Contract expenses: Companies can claim up to 65% of their U.S.-based contract research expenses.
  • Supplies: This covers non-capital/non-depreciable supplies used or consumed in the development process, such as prototyping materials.

Under Section 174 of the tax code, deductions include the research credit expenses above and other categories of research and experimentation spend that depend on the business. Rather than adopting this approach to R&D tax credits as a one-time opportunity, companies should focus on making R&D tax benefits a part of their long-term financial strategy. Documenting the time employees spend on designing and developing technical solutions, testing designs, and other R&D activities helps simplify the process. Understanding which tasks don't qualify, such as standard design development or administration, is just as important to ensure accurate accounting.

The American architecture industry is already at the forefront of innovation, leading the world in researching and applying new materials and technologies to their designs. By taking advantage of the R&D tax credit and permitted deduction, firms can dedicate more resources to experimentation and continue pushing the boundaries of building design.