Walk into a design meeting at an architecture firm or a job site for a complex build, and you will hear the same kinds of questions over and over: can this structure handle the load with a different material? How do we meet energy targets without blowing the budget? What is the safest way to execute this design given site constraints?
Most teams think of this as part of doing the job, but what often gets missed is that this type of work can qualify for R&D tax credit construction industry incentives.
The federal R&D tax credit was not created just for labs or product companies. It exists to reward businesses that solve technical problems through structured thinking and experimentation. That includes architecture firms designing high performance buildings, engineers working through structural constraints, and construction teams developing new ways to bring those designs to life.
This guide walks through how architecture, engineering, and construction firms can qualify for the R&D tax credit. We break down how your company can leverage A&E R&D tax credits by outlining what qualifies, how to identify eligible work, and how to approach documentation in a way that aligns with guidance from the IRS. Essentially, we will answer the questions:
-
- What is the R&D tax credit for the A&E industry?
- How can those in construction qualify for the credit?
- What are common examples of qualifying activities in the industry?
- How do I navigate the 2026 tax landscape?
- What are Qualified Research Expenses (QREs)?
What Is the R&D Tax Credit for the Construction Industry?
The R&D tax credit for the construction industry is a federal incentive that allows firms to reduce their tax liability when they invest time and resources into solving technical challenges. In simple terms, if your team is working through uncertainty in design, engineering, or construction methods, part of that effort may qualify for a tax credit.
This applies to a wide range of activities, including:
-
- Designing complex building systems
- Engineering structures for unique site conditions
- Developing new construction methods
- Improving building performance or efficiency
A&E R&D Tax Credits: The Four-Part Test in Practice
To determine whether work qualifies, the IRS uses a framework known as the Four-Part Test. Although it may sound counterintuitive, this applies just as much to design studios and job sites as it does to laboratories. If this is your first time coming across the Four-Part Test, we’ll walk through a quick overview here along with a few examples of A&E activities that may qualify. For a deeper look at what expenses could qualify for the tax credit, you can read all the key details in our full guide to the R&D tax credit.
1. Permitted Purpose
The first major hurdle to clear is that the work must strive to create a new or improved product or process. The improvement must be meaningful, but the important thing to note here is that it doesn’t need to be groundbreaking or revolutionary to satisfy the requirement. In an A&E context, this could include:
-
- Designing a more energy efficient building
- Improving structural performance
- Enhancing durability or safety
- Reducing construction costs through design changes
2. Technical Uncertainty
At the beginning of the project, uncertainty about how to achieve the target result is a necessary feature of the process. Determine whether there is uncertainty in your process by laying out the research questions you have at the start of the project. If the answers to them are not clear without testing, the project may qualify. Examples of such research questions in the A&E industry could include:
-
- Can this foundation design work with this soil composition?
- Will this facade system meet both aesthetic and performance goals?
- Can we meet LEED Platinum requirements with these material constraints?
3. Process of Experimentation
Another requirement lies in the way experimentation to resolve the technical uncertainty is carried out. Basically, the team should test multiple approaches to find a solution. This does not require formal lab testing, as iteration and comparison are sufficient. In practice, this often looks like:
-
- Running multiple structural models
- Testing different HVAC system configurations
- Evaluating alternative materials
- Using CAD or BIM tools to simulate outcomes
4. Technological in Nature
The project must be rooted in principles of engineering, physics, or related disciplines in the hard sciences. Architecture and engineering firms almost always meet this requirement because their work is grounded in technical design.
Common Examples: Where A&E Firms Find R&D
Many firms are surprised by how often their work meets the criteria for the architecture R&D tax credit. Despite R&D being in the name of the tax credit, you do not need to have a designated R&D department to claim it. Below are examples across design, engineering, and construction of activities your company could potentially receive the credit for:
Architecture and Design
Architects frequently engage in R&D while balancing performance, aesthetics, and compliance. Examples of this engagement include:
-
- Designing high performance building envelopes
- Integrating sustainable or low carbon materials
- Developing custom facade systems
- Optimizing daylighting and energy use
- Meeting LEED or other certification requirements
These efforts often require testing multiple design options and evaluating performance tradeoffs, making them great contenders for the tax credit.
Structural and Civil Engineering
Engineering teams often face site specific challenges that require careful analysis. These challenges can look like:
-
- Designing foundations for unusual soil conditions
- Developing seismic retrofitting strategies
- Engineering structures for extreme weather
- Optimizing load distribution in complex buildings
- Designing infrastructure for utilities and drainage
Each of these tasks involves uncertainty and requires technical evaluation.
Construction Methodology
R&D does not stop at design. The R&D tax credit for the construction industry covers activities like modular construction techniques, or "Value Engineering" that requires technical experimentation. Construction teams often develop new ways to execute projects. These activities often involve trial and refinement. More examples include:
-
- Creating modular or prefabricated building systems
- Developing new safety procedures
- Improving sequencing of construction activities
- Implementing value engineering solutions that require redesign
- Testing new materials or installation methods
Identifying Qualified Research Expenses (QREs) in Construction
Once qualifying activities are identified, the next step is determining which costs derived from them can be included in the credit. There four categories of expenses that are eligible:
1. Employee Wages
Wages are typically the largest component of the tax credit. Even partial time spent on qualifying activities can count. This includes time spent by:
-
- Architects and designers
- Structural and civil engineers
- Project managers involved in technical decision making
- This also includes anyone directly supervising the research and experimentation processes.
- Principals contributing to design problem solving
The amount included in Box 1 on an employee’s W2 will help indicate what qualifying employee wages will be.
2. Supplies and Materials
Certain material costs can qualify if they are used during experimentation. Note that eligible supplies must be tangible and non-depreciable. Additionally, the materials used in final construction for sale generally do not qualify. Examples of expenses you could claim include:
-
- Materials used for mock ups or prototypes
- Components tested during design validation
- Trial materials used during construction testing
3. Contract Research
You can claim up to 65% of payments made to US-based third party contractors if:
-
- The work involves technical problem solving
- The firm assumes financial risk and retains substantial rights in the development
If you pay for research in advance, you will have to wait until the work is actually performed to file for the credit.
4. Software and Modeling Tools
A&E firms rely heavily on software tools for design and simulation. Thankfully, the IRS allows certain computer-related costs to be included when they are used in qualified research activities. Costs accrued from the following may qualify if they are directly tied to experimentation:
-
- BIM platforms
- Structural modeling software
- Energy simulation tools
Gathering all this information can be quite daunting at first, but familiarizing yourself with the process is a strong start. If you want to see the specific figures the IRS will ask for when you’re filing, you can explore a detailed breakdown of IRS Form 6765, which is the form companies use to claim the R&D tax credit.
Navigating the 2026 Tax Landscape for A&E Firms
The 2026 tax environment represents a meaningful shift for architecture, engineering, and construction firms. With the passage of the One Big Beautiful Bill Act, Section 174A allows companies to immediately deduct domestic research and development costs in the year they are incurred, rather than spreading those deductions over multiple years.
For A&E firms, this change directly affects how design and engineering costs are treated. Under prior rules introduced by the Tax Cuts and Jobs Act, firms were required to capitalize and amortize these expenses over five years for domestic work. That approach delayed the financial benefit of R&D spending and often created pressure on cash flow, especially for firms managing large, labor intensive projects. Now, Section 174A reverses that timing issue.
Keep in mind that this treatment applies exclusively to domestic research and development activities. Work performed outside the United States may still be subject to longer amortization periods, which means firms with global operations need to track costs carefully.
Alongside these legislative changes, court decisions have also helped clarify how the R&D tax credit applies to architecture and engineering work. One case that is often discussed in this context is Harper v. Commissioner.
Harper v. Commissioner
In the 2023 landmark case, Harper v. Commissioner, the court examined whether certain design and engineering activities met the criteria for qualified research. The case reinforced an important principle for A&E firms: design work can now qualify for the R&D tax credit when it involves technical uncertainty and a process of experimentation.
When combined, Section 174A and the evolving body of case law create a more favorable environment for A&E firms. Immediate expensing improves the timing of tax benefits, while clearer guidance on qualifying activities helps firms identify opportunities with greater confidence.
Capturing the A&E Credit
For leadership teams that understand the R&D tax credit, filing an IRS Form 6765 is no longer just about compliance. It becomes part of broader financial planning, influencing how firms approach project design, resource allocation, and long term growth.
Recovering a portion of engineering and design costs can support hiring additional staff, investing in new tools, taking on more complex projects, and countless other ways that improve business. For firms operating on tight margins, this can make a noticeable difference.
“Keep the stone flipping. Arvo's program is a great example of that. We are getting a $200K gift just by saying yes with a little extra effort.”
–April Seggebruch, Co-founder of Movista
Your next step is deciding how you will file your claim. Two strategies for filing are available to you: independent filing or filing with an experienced tax professional. What a tax professional can provide you, in addition to taking the burden off your shoulders, is ensuring that your tax study makes a convincing case, is low-audit risk, and captures the credits that are easy to miss.
