When most people think of R&D tax credits, they picture software engineers or biotech labs. But architecture engineering R&D credits are available to firms that design high-performance buildings, test new materials, and solve complex structural challenges.
Here is what qualifies and how to claim it under the 2026 rules.
The Four-Part Test Applied to A&E
To qualify, your activities must meet all four IRS requirements under IRC Section 41.
1. Permitted Purpose
Your work must aim to improve the function, performance, reliability, or quality of a building or system. This includes developing new structural systems, high-performance facades, or specialized construction methods.
Examples:
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Designing a unique foundation system for unusual soil conditions
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Developing a novel building envelope to exceed energy benchmarks
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Creating custom mechanical, electrical, or plumbing (MEP) system integrations
2. Technological in Nature
Research must rely on engineering, physics, or computer science. For A&E firms, this means work grounded in structural, mechanical, or environmental engineering rather than aesthetic design.
Examples:
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Modeling wind loads on supertall structures
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Testing thermal performance of building materials
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Optimizing HVAC systems through computational fluid dynamics
3. Elimination of Technical Uncertainty
There must be uncertainty about capability, method, or design at the project’s outset. If you already knew the solution, it is not research.
What creates uncertainty:
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Unusual site conditions (seismic zones, soil instability)
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New material applications with unknown performance
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Performance targets exceeding standard codes
What does NOT create uncertainty: Routine application of standard codes and commercially available software.
4. Process of Experimentation
You must show systematic evaluation through modeling, simulation, prototyping, or trial and error. This does not require formal hypothesis testing, but it must be more than routine design work.
Qualifying activities:
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Running multiple BIM simulations to optimize performance
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Testing alternative material combinations
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Iterative design refinements based on data
The failed projects count too. The IRS rewards experimentation, not just success.
What Qualifies in Practice
Qualifying Activities
Structural Systems
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Designing unique long-span truss systems requiring modeling and testing
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Developing specialized foundation systems for complex site conditions
Energy and Sustainability
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Designing novel building envelope systems exceeding performance benchmarks
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Testing low-embodied carbon materials
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Developing net-zero energy design strategies
MEP Systems
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Integrating complex mechanical, electrical, and plumbing systems
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Solving site-specific airflow, humidity, or temperature challenges
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Testing alternative HVAC configurations through simulation
Digital Tools
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Developing proprietary BIM workflows or automation tools
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Creating custom computational design processes
What Does NOT Qualify
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Standard design work using industry software without new challenges
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Drawing production and basic CAD work
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Code compliance without uncertainty
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Routine quality control without technical uncertainty
New OBBBA Rules for 2026
The One Big Beautiful Bill Act (OBBBA), signed in July 2025, restored full expensing of domestic research costs starting in 2025.
Immediate Expensing Is Back
For tax years beginning after December 31, 2024, A&E firms can once again deduct domestic R&D costs in the year incurred.
Foreign research still amortizes over 15 years.
Retroactive Relief for Small Businesses
Firms with average annual gross receipts of 31 million or less may amend 2022-2024 returns to deduct domestic R&D costs.
Deadline: July 6, 2026.
Section 280C Interaction
Deducting Section 174 costs reduces the base for the Section 41 R&D credit. However, firms can elect to reduce the credit by 21 percent instead of reducing the deduction.
This is not automatic. Each firm must evaluate which method produces the better outcome.
The OBBBA restored full expensing for architecture engineering R&D credits, making them more valuable than at any point since 2021.
Section 179D: A Separate Opportunity with a Hard Deadline
The 179D energy efficiency deduction is a separate incentive for designers of government and nonprofit buildings.
Critical deadline: The deduction expires for projects beginning construction after June 30, 2026.
What to do now: Identify qualifying government projects (schools, public buildings, nonprofits) that can meet the June 30 construction start deadline.
Understanding architecture engineering R&D credits requires knowing what qualifies and what does not.
Documentation Best Practices
The Tax Court has repeatedly emphasized that contemporaneous records are non-negotiable. Reconstructed studies assembled years later do not hold up.
What to track:
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Model iterations and simulation results
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Alternative designs tested and why they failed
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Technical uncertainty at project outset
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Time spent by engineers on R&D activities
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Materials tested and results
How to track it:
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Use project codes for R&D time
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Maintain dated project logs
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Keep detailed meeting notes and email records
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Store all records in organized format
Bottom Line
R&D tax credits for architecture and engineering are real. Recent Tax Court rulings have affirmed that design firms can claim credits under client contracts—provided they retain rights to their work and document their process.
The 2026 rules offer immediate expensing, small business retroactive relief, and a hard deadline for 179D. The opportunity is there.
Call (844) 463-2400 or email hello@indagotax.com to find out what qualifies in your firm.