If your firm has ever developed a new structural approach, tested an unconventional design solution, or worked through real technical uncertainty on a project, you may already be doing R&D work the tax code rewards — most engineering and architecture firms just never claim it.
If you run an engineering or architecture firm anywhere in Frederick County or central Maryland, two federal incentives are worth real attention this year: the R&D tax credit, and a separate, design-specific deduction most firms have never heard of.
The R&D tax credit isn't limited to laboratories and product manufacturers. To qualify, work needs to rely on engineering, scientific, or technological principles, aim to develop or improve a product, process, or design, and involve genuine experimentation to resolve real technical uncertainty — developing a new structural system, testing an unconventional building approach, or working through a design problem that didn't have an obvious answer from the start.
What doesn't qualify: routine design work using established, standard methods, market research, and quality control after a design is already finalized. The distinction the IRS draws is between genuine technical uncertainty and resolving it through experimentation, versus simply applying well-established design practices to a new project.
The IRS has specifically flagged architecture and engineering firms for additional scrutiny on R&D credit claims, precisely because their work blends genuinely qualifying research with a lot of routine, non-qualifying design activity. This makes documentation — not eligibility — the real challenge for most firms in this field.
For years, a rule under Section 174 forced firms to capitalize and amortize domestic research costs over five years rather than deducting them immediately — a change that quietly increased tax bills for firms doing qualifying R&D work, sometimes dramatically. Recent legislation restored the ability to fully and immediately deduct domestic research expenses starting in 2025, which is a meaningfully better outcome for firms doing genuine R&D-qualifying design work. Foreign research costs still have to be amortized over 15 years, so where your design and engineering work actually happens matters more than it used to.
| Research Location | Current Treatment |
|---|---|
| Domestic (U.S.-based) research | Immediately deductible in the year incurred |
| Foreign research | Amortized over 15 years |
If your firm's average annual gross receipts are under roughly $31 million, you may be eligible to amend returns from 2022 and 2023 to fully expense research costs that were previously forced into the slower amortization schedule, along with updating related elections. This lookback window is time-limited, with the relevant amendment deadline running through mid-2026 — meaning firms that qualify and haven't acted yet are working against a real, approaching cutoff, not an open-ended opportunity.
Separate from the R&D credit, Section 179D offers a deduction for designing energy-efficient commercial buildings. What makes this particularly relevant for architecture firms: for projects involving tax-exempt entities — public schools, government buildings, nonprofit-owned facilities, religious institutions — the building owner often can't use the deduction themselves, since they don't pay federal income tax. In these cases, the deduction can be allocated to the person primarily responsible for the building's design, meaning your firm, not the building's owner, may be able to claim it directly.
This allocation rule has expanded in recent years to cover essentially all private nonprofit entities, not just public buildings — a real and growing opportunity for firms that design schools, religious facilities, and nonprofit-owned buildings, which many architecture firms never realize applies to their own work.
Recent updates to the relevant IRS form now require firms to clearly explain what was developed, why the work qualifies as genuine research, and what it cost — at the level of individual projects or business components, not just a lump total. Firms that tag time entries to specific projects, document the technical uncertainty being resolved, and keep this contemporaneously rather than reconstructing it later are in a far stronger position if a claim is ever reviewed.
At Mercer Flanagan, we work with engineers and architects throughout Frederick County and central Maryland to evaluate whether your design work qualifies for the R&D credit, assess whether the small business lookback window applies to your firm, and explore 179D opportunities on projects involving tax-exempt building owners.
Book a free consultation and we'll walk through your specific situation — no pressure, no obligation.
Book a Free ConsultationNo. If your staff uses engineering or design expertise to resolve genuine technical uncertainty on a project, that work may qualify even without a formally separate research department.
Firms with average annual gross receipts under roughly $31 million may be eligible to amend 2022 and 2023 returns, but this window has a real deadline running through mid-2026, so it's worth evaluating soon rather than treating it as open-ended.
Often yes. Since tax-exempt building owners can't use the deduction themselves, it can frequently be allocated to the design firm primarily responsible for the building, which has been expanded to cover most private nonprofit entities.
By Roy Cogliandolo, CPA · Mercer Flanagan · March 28, 2026
This article is for general informational purposes and reflects tax rules current as of 2026. R&D credit and 179D eligibility depend on specific facts and documentation — speak with a CPA before making decisions based on this information.