When most architecture, engineering, and construction firms think about R&D tax credits, they often assume the incentive is reserved for pharmaceutical companies developing new drugs or tech startups building software. But the reality is far different: AEC firms engaging in innovative materials research and application may be sitting on significant tax credit opportunities they’re not claiming.
Understanding R&D Tax Credits in Construction
The federal R&D tax credit, established in 1981 and made permanent in 2015, rewards companies for investing in innovation. For AEC firms, this often means developing or leveraging materials that go beyond standard construction practices to solve technical uncertainties.
The IRS uses a four-part test to determine eligibility:
- Permitted Purpose: The activity must aim to create or improve a product’s functionality, performance, reliability, or quality.
- Technological in Nature: The work must rely on principles of engineering, physical sciences, biological sciences, or computer science.
- Elimination of Uncertainty: The activity must address technical uncertainty about the method or capability of achieving the desired result.
- Process of Experimentation: The work must involve a systematic evaluation of alternatives through modeling, simulation, or trial and error.
For AEC firms working with innovative materials, activities that meet these criteria are more common than you might think.
Materials Innovation That Qualifies
Advanced Composite Materials
When structural engineers evaluate fiber-reinforced polymers or carbon fiber composites for strengthening existing structures or enabling lighter designs, they’re often engaged in qualifying R&D. Questions like “Can this composite achieve the required load-bearing capacity in this specific environmental condition?” or “What layup schedule will provide optimal strength-to-weight ratios for this application?” represent technical uncertainties.
The process of testing various resin systems, fiber orientations, and curing methods to achieve project-specific performance requirements is precisely the type of experimentation the credit is designed to reward.
High-Performance Concrete Formulations
Developing concrete mixes that meet unusual performance requirements, such as: ultra-high-performance concrete (UHPC), self-healing concrete, or formulations for extreme temperature environments, frequently qualifies. When engineers adjust cement types, aggregate compositions, admixture combinations, and water-cement ratios while testing compressive strength, durability, and workability, they’re conducting qualifying R&D.
Even levaraging existing concrete technologies to incorporate recycled materials while maintaining structural performance involves the systematic evaluation of alternatives that the IRS looks for.
Sustainable and Bio-Based Materials
The construction industry’s push toward sustainability has opened new R&D frontiers. Firms investigating cross-laminated timber for high-rise applications, hempcrete for insulation, or mycelium-based materials for non-structural components are often resolving genuine technical uncertainties about fire resistance, structural behavior, moisture management, and long-term durability.
Phase Change Materials and Thermal Systems
Incorporating phase change materials into building envelopes for thermal mass requires extensive testing and modeling. Engineers must determine optimal PCM placement, encapsulation methods, and integration with HVAC systems, all while ensuring building code compliance and long-term performance. This systematic problem-solving qualifies.
Smart and Responsive Materials
Materials that respond to environmental conditions: electrochromic glass that adjusts tint, self-dimming facades, or shape-memory alloys for seismic applications, require substantial R&D during specification and integration. The technical uncertainties around control systems integration, failure modes, and performance under real-world conditions create qualifying activities.
What Activities Count?
Within innovative materials projects, specific activities typically qualify for the credit:
- Materials testing and evaluation: Laboratory testing, field trials, and performance monitoring to validate material properties meet technical challenges and uncertainty requirements.
- Design iteration and modeling: Using finite element analysis or computational fluid dynamics to evaluate how innovative materials will perform structurally, thermally, or acoustically.
- Prototype development: Creating mockups or test sections to evaluate constructability, appearance, or performance before full-scale implementation.
- Problem-solving during construction: When innovative materials don’t perform as expected during installation and the team must systematically troubleshoot and adapt methods.
- Documentation and analysis: Engineering calculations, test reports, and design evaluations that support the technical decision-making process.
- Bonus – innovative application methods : Unrelated to the material itself, but clever and innovative application approaches can constitute valid R&D as well.
Common Misconceptions
“We’re just following specifications”: Even when working within codes and standards, achieving specific performance targets with novel materials often requires innovation. The question isn’t whether you’re breaking rules, it’s whether you’re resolving technical uncertainties.
“It’s architecture, not science”: Many architects underestimate how much of their materials specification work involves technical problem-solving. Selecting and detailing innovative cladding systems, for instance, often requires balancing aesthetic vision with thermal performance, water management, and structural attachment, a process full of technical trade-offs.
“We didn’t discover anything new”: You don’t need to invent a new material to qualify. Adapting existing materials to new applications, combining materials in novel ways, or optimizing material performance for specific conditions all count.
“The project succeeded, so there was no uncertainty”: Success doesn’t disqualify you. The technical uncertainty exists at the project’s outset. Your systematic work to resolve that uncertainty is what qualifies, regardless of the outcome.
Documenting Your Innovation
AEC firms often fail to claim credits simply because they haven’t documented qualifying activities. To maximize your benefit:
- Track design iterations: Save calculation sheets, meeting notes discussing technical alternatives, and emails debating material choices.
- Preserve test data: Material test results, mockup evaluations, and performance monitoring data demonstrate your experimentation process.
- Document time allocation: Track which team members spent time on innovative materials research, testing, and problem-solving versus routine design work.
- Connect activities to uncertainty: Clearly articulate what technical question you were trying to answer and how your activities addressed it.
The Bottom Line
The construction industry is undergoing a materials revolution driven by sustainability requirements, performance demands, and technological advancement. If your firm is at the forefront: specifying innovative materials, testing new applications, or solving technical challenges that push beyond standard practice, you’re likely conducting R&D that qualifies for substantial tax credits.
Many AEC firms leave money on the table simply because they don’t recognize the innovation embedded in their daily work. By understanding how innovative materials activities align with R&D tax credit requirements and implementing proper documentation practices, firms can recover a significant portion of their investment in advancing the built environment.
