R&D Tax Credit for Architects and Architecture Firms
Some of your design hours are research. Most of them are not.
Architecture firms can claim the federal R&D credit for design work that resolves a genuine technical uncertainty through experimentation, such as performance modelling, new assemblies, and novel structural or material systems. Style and aesthetics are excluded by statute, and your client agreements decide whether the rest can be claimed. Each project is tested against the four-part test.
Photo by Marsumilae on Unsplash
Can architecture firms claim the R&D tax credit?
Yes, for the part of the work that is technical. The IRC §41 credit reaches work on a business component where the information available did not establish whether the design could be achieved, how to achieve it, or what the right design was, and where the firm resolved that by evaluating alternatives through modelling, simulation, or systematic trial and error.
That is why a facade assembly outside the tested range, a mass-timber floor for a span you had not done before, or a design iterated against a calibrated energy model are all candidates, and why a concept scheme, a permit set, or a code check are not. Architecture carries one exclusion other design disciplines barely notice: §41(d)(3)(B) says research is never for a permitted purpose if it relates to style, taste, cosmetic, or seasonal design factors.
The second half of the problem is contractual. Almost every hour is billed to a client, so the funded-research exclusion has to be answered agreement by agreement. Fee structure is a starting position, not an answer, and the reported outcomes for design firms cut both ways. Engineering firms face the same contract question with different technical work; that is covered on our R&D tax credit for engineering firms page.
Seven situations that often hide qualified research
Illustrative situations, not client work. If one reads like a project you ran, there may be a qualified business component underneath it.
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Example 1
A facade that would not hit the energy target as drawn
Glazing ratios, shading depths, and wall build-ups were modelled and re-modelled against a calibrated energy model until the predicted performance held, and the elevation changed because the numbers said so.
Why it can qualify: Improving performance is a permitted purpose, and iterating alternatives against a calibrated simulation is a process of experimentation.
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Example 2
A mass-timber floor at a span the studio had never detailed
Panel depths, composite toppings, and support conditions were analysed with the engineer against a vibration criterion, and two schemes were dropped on the numbers before one was carried.
Why it can qualify: Uncertainty about the appropriate design of a new structural assembly, resolved by evaluating alternatives rather than by selecting a known detail.
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Example 3
An embodied-carbon target that ruled out the usual structure
Low-carbon concrete mixes and a hybrid framing option were evaluated with the engineer and the supplier, and a test panel was poured before the specification was fixed.
Why it can qualify: Capability and method uncertainty in the physical sciences. A sustainability target is a performance requirement when meeting it takes experimentation.
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Example 4
A shading study that kept failing the glare criterion
A parametric model generated and simulated dozens of fin geometries against measurable daylight and glare metrics, and the design moved on the results, not on preference.
Why it can qualify: Computational exploration against measurable performance criteria is modelling and simulation in the regulatory sense. Choosing among options that all work on looks is not.
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Example 5
A lightweight wall that missed the acoustic separation
Three assemblies were developed, a mock-up was built, and field measurements sent the design back once before the rating held.
Why it can qualify: A performance requirement the available information could not meet, resolved by mock-up and measurement. The mock-up materials consumed are supplies.
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Example 6
A room module that had to survive transport and craning
A prefabricated room module needed new connection and tolerance details, so prototypes were built, lifted, and inspected before the design went to the fabricator.
Why it can qualify: Design uncertainty resolved by prototyping. The first module is the candidate; repeating the proven module on the next site is duplication.
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Example 7
An adaptive-reuse scheme resting on a floor nobody could rate
The existing slab’s capacity had to be established by investigation and analysis before a new use could be planned on it, and the first strengthening concept did not survive the second round of numbers.
Why it can qualify: The information available did not establish the method. Establishing it by test and analysis is what the statute asks for.
Illustrative situations, not client work. Whether any of them qualifies for you depends on your facts, your agreements, and your evidence.
Documentation that works for design firms
A studio already produces most of the evidence a claim needs, in a form nobody files for tax: option studies with the schemes that were rejected, model runs and their assumptions, superseded detail revisions, mock-up photographs and test results, and the design-meeting minute where the answer changed.
What is almost never in the record is the allocation: which hours went to the uncertain part of the project, and which went to documenting a settled design. Project accounting by phase and task usually gets you most of the way, because it already separates schematic design from documents and construction administration. A flat percentage applied across every project cannot answer the question, and it is the first thing an examiner asks about.
Architectural design work that can qualify
Representative activities that can meet the four-part test when the outcome was genuinely uncertain and alternatives were evaluated.
Energy and performance modelling
High-performance envelope and facade assemblies
New materials and structural systems
Computational and parametric design
BIM-driven design experimentation
Sustainability and net-zero targets
Acoustic and vibration performance
Prefabrication and modular systems
Design-phase mock-ups and testing
What qualifies, and what does not
| Can qualify | Does not qualify |
|---|---|
| Developing a facade assembly outside the tested range and proving it by analysis and mock-up | Choosing a cladding material, colour, or pattern for how it looks |
| Iterating the design against a calibrated energy model until a performance target holds | Running a compliance model to document that a finished design meets the code baseline |
| Evaluating structural or material alternatives for a new assembly, with the engineer | Massing studies, renderings, and aesthetic iteration |
| Parametric exploration scored against measurable daylight, glare, or thermal criteria | Producing construction documents, permit sets, and code checks for a settled design |
| Prototyping the first prefabricated module or connection | Repeating a proven prototype building on a new site, or adapting it to one client’s brief |
| Resolving a field condition that forces a genuine redesign | Construction administration: submittals, RFIs, and site observation |
Typical QRE categories for an architecture practice
What spending counts toward the credit, for a business whose costs are almost entirely people.
| Expense category | What goes into the base |
|---|---|
| Technical wages§41(b)(2)(A)-(B) | W-2 wages for architects, designers, computational designers, and modellers for time spent on qualified design work, plus direct supervision and direct support of it. |
| Contract research (65%)§41(b)(3) | 65% of amounts paid to U.S. consultants and testing laboratories (energy modellers, facade and acoustic consultants, test labs) for qualified research performed on your behalf, under an agreement entered into before the work that requires you to pay even if the research is not successful. |
| Supplies§41(b)(2)(C) | Materials consumed in mock-ups, test panels, and physical prototypes built during design. Never depreciable equipment. |
| Computer rental§41(b)(2)(A)(iii) | Amounts paid for the right to use computers in qualified research, such as rented compute for a large simulation run. Per-seat software licences are not a §41 expense category. |
What the base usually looks like
IllustrativeA directional shape for an architecture practice, not a benchmark. Wages carry nearly the whole claim, which is why the hour-level allocation has to be defensible rather than assumed.
- Technical wages - Architect, designer, and modeller time on projects with a real technical unknown.
- 84%
- U.S. contract research - Performance consultants and test labs you pay whatever the outcome, in the base at 65%.
- 12%
- Supplies - Mock-up, test-panel, and prototype materials consumed during design.
- 3%
- Computer rental - Rarely material, and software seats do not count.
- 1%
Where the line sits
Consultant fees count at 65% only when you pay them whatever the outcome and the research is performed on your behalf. A consultant billed through to the client at cost is usually the client’s expense, not yours.
Seat licences for BIM, modelling, and rendering software are not a §41 expense category, however large the invoice. Neither is rent or the overhead loaded into your billing rate: a fully loaded cost model will overstate the credit every time.
Fixed fee, hourly, and who owns the drawings
Under §41(d)(4)(H) and Treas. Reg. §1.41-4A(d), research is funded unless you bear the financial risk of failure and keep substantial rights in the results. Both prongs are read from your agreements.
| Fee structure | Starting position | What actually decides it |
|---|---|---|
| Stipulated sum or fixed fee | Strongest starting position. Extra design effort is not paid for, so you carry the cost if the work does not succeed. | Whether payment is tied to meeting objective requirements (acceptance, rejection, rework at your cost), not just a standard of care. A fixed fee alone was not enough in 2024. |
| Percentage of construction cost | Closer to a fixed fee than to hourly, because the fee does not move with your design hours. | The same payment, acceptance, and rework terms as a fixed fee. Read the agreement, not the fee basis. |
| Hourly or time and materials | Weakest starting position. The client pays for effort whatever the outcome. | If you keep substantial rights, the research is funded to the extent of the payments you become entitled to, so little is usually left. |
| Hourly with a not-to-exceed cap | Weak. A capped cost-reimbursement agreement was held funded in Geosyntec (11th Cir. 2015). | Whether any payment is conditioned on success at all. A cap limits the client’s cost; it does not make payment depend on results. |
Risk: what the courts have looked at
In Meyer, Borgman & Johnson v. Commissioner (8th Cir. 2024), a structural engineering firm lost on fixed-price contracts. Performing with professional skill and care and complying with codes was proper performance, not successful performance, and the agreements had no express terms making payment depend on success, such as rejection of non-conforming work or a refund if benchmarks were missed.
In Populous Holdings v. Commissioner (T.C. Dkt. No. 405-17), the Tax Court granted summary judgment in December 2019 to an architectural design firm on fixed-price contracts: clients paid fixed prices for final products, so payment depended on the firm’s successful performance. The order did not decide whether the design work was qualified research, and as an unpublished order it is persuasive reasoning only.
Rights: who can use what you figured out
Substantial rights do not mean exclusive rights. In Populous, the clients’ ownership of the delivered documents was not fatal, because nothing in the contracts stopped the firm from using the research it had performed or required it to pay for that use.
The standard AIA owner-architect agreement (B101-2017) is a useful reference point: the architect is deemed the author and owner of its Instruments of Service and keeps copyright, and the owner receives a license limited to the project. Its standard-of-care language is the kind of obligation the Eighth Circuit said does not by itself put payment at risk. Many practices sign modified or owner-drafted forms, so the analysis follows the signed agreement, not the template.
Case outcomes for design firms have gone both ways on facts that look similar from the outside, which is the honest reason to read the agreements rather than rely on a rule of thumb. Our note on funded research and contract clauses works through the cases in more detail.
The federal credit is rarely the whole number
Most states with a corporate income or franchise tax run their own R&D credit off a similar research base, each with its own rate, cap, carryforward, and refundability. For a practice with studios in several states, where the qualified work was performed matters to both numbers.
Two deductions sit next to the credit. §174A restored immediate expensing of domestic research and experimental costs for tax years beginning after December 31, 2024, on a definition broader than the four-part test. And the §179D deduction that government and tax-exempt building owners could allocate to designers does not apply to property whose construction begins after June 30, 2026, so only projects that started construction by then are still in play.
What we ask for first
- The owner agreements on your largest projects, in full, with amendments
- Project accounting by phase and task, not just by job
- Option studies, model runs, and superseded detail revisions
- Consultant agreements, and whether their fees are billed through
- Which work was supported offshore, and how much
Summary only - the analysis is done per agreement and per business component, not per firm.
What an architecture-firm study can look like
A hypothetical scenario to show how the pieces fit together. It is not a quote, projection, or promise of results.
- Technical payroll
- $3.2M
- Projects surviving the funded-research screen
- ~50%
- Share of those hours on genuinely uncertain work
- ~15%
- U.S. performance consultants you bore the cost of
- $60K
- Estimated QRE
- ~$280K
- Illustrative federal credit
- ≈ $17K-$28K
Plus the §174A deduction on domestic research and experimental costs, on a definition broader than the credit’s.
Illustrative only. Figures are hypothetical and rounded; consultant fees are included at 65%. The federal credit commonly works out to roughly 6-10% of QRE depending on method, filing history, and the §280C election. Note how much the two screens remove: that is what an honest architecture-firm claim looks like. This is not a quote or a guarantee.
The deduction reaches further than the credit
IRC §174A restores immediate, full expensing of domestic research and experimental costs for tax years beginning after December 31, 2024, on a definition broader than the §41 four-part test. For a design practice that gap matters: costs that do not clear the credit can still be §174A expenditures.
R&D tax credit for architects - frequently asked questions
Can architects claim the R&D tax credit?
Does conceptual or aesthetic design count?
Our agreements are stipulated sum. Does that settle the funding question?
We bill most projects hourly. Are we out?
The client owns the drawings. Have we given away substantial rights?
Is energy modelling qualified research?
Does BIM or computational design count?
What documentation do architecture firms need?
Does §174A apply to an architecture practice?
What about the §179D deduction for designers?
Next
Funded research: how your contracts decide who gets the credit
The risk and rights prongs worked through with the cases, including the design-firm outcomes on both sides.
The test itself
The four-part test, applied the way an examiner applies it
Permitted purpose, technological in nature, uncertainty, and experimentation, with pass and fail examples.
For engineering firms
R&D tax credit for engineering firms
Structural, civil, MEP, and product engineering, with the same contract question on the other side of your consultant agreements.
New to the credit? Start with the R&D tax credit overview, or put rough numbers into the R&D credit calculator.