Construction Companies Might Be Eligible for an R&D Tax Credit and Not Even Know It

What do you think of when you hear the term "R&D"? If you picture lab coats and beakers bubbling, you're not alone. However, in the construction industry research and development can be quite different. It involves a wide range of activities your company might already be doing. These activities could qualify your company for significant tax credits, savings that many people are unaware of.

A specialized R&D tax team understands the unique innovations happening in construction. Alex Helkamp, CPA, CCIFP, Tax Director at Redpath, works with construction and real estate companies to uncover the tax opportunities they may be missing. 

You might be surprised at what qualifies for the R&D tax credit.

"When you hear 'R&D,' you don't think you're doing that kind of work," Alex says. "There's been a recent shift in perception, but back in the early 2010s, business owners thought it meant new medical innovations and technological advancements. But when you look at the innovations and developments being made, it covers a lot of kinds of work.”

Understanding R&D Tax Credits for Construction Companies

Any business that uses science or technology to innovate or improve its products or processes might reduce federal taxes (often about seven to eight percent of the qualified costs incurred).

A R&D tax team evaluates activities against these four qualifications:

• Qualified purpose: The work must be in pursuit of a new or improved process or product. Innovation can be new to your company, not necessarily the industry.
• Technological in nature: The work must employ engineering, computer, or physical sciences. (Construction companies are most likely to use engineering sciences in their work, but there are many ways to consider this stipulation.)

• Elimination of uncertainty: You must show that you considered alternative methods for doing the work or completing the project. Getting rid of uncertainty is an attempt to prove that the qualifying activity was the appropriate way to design a product or achieve a goal.

• Process of experimentation: You must reach your conclusions through modeling, testing, or developing prototypes, among other tactics.

Construction Activities That May Qualify for R&D Tax Credits

A R&D tax team identifies numerous construction activities that often qualify for tax credits:

• Building Information Modeling (BIM): Developing custom BIM workflows, creating parametric models, or integrating BIM with project management systems.
• Sustainable Building Innovations: Designing LEED-certified buildings, developing energy-efficient systems, or testing new sustainable materials.
• Structural Engineering Solutions: Creating unique structural designs for challenging sites, developing seismic-resistant systems, or engineering complex foundations.
• Construction Process Improvements: Developing new installation methods, creating custom equipment modifications, or implementing innovative safety systems.
• Material Testing and Development: Testing new material combinations, developing proprietary concrete mixes, or creating weather-resistant building solutions.

Technology Integration:  Implementing drone surveys, developing VR/AR applications for construction, or creating custom project management software.

Why Most Construction Companies Don't Know They're Eligible

In the contracting space, qualifying activities often include design/build projects, LEED certification, new material combinations, BIM, prefabrication processes, modular construction methods, and more. A new product or process doesn't need to be new to the world to qualify. It just needs to be new to your business, Alex says, illustrating the broad range of developments that can be eligible. It's a misconception that's led many companies to leave the credit unclaimed.

Luckily, you can retroactively claim the R&D tax credit for any tax year within the statute of limitations. Beyond the federal credit, many states, including Minnesota, offer R&D tax credits of their own.

Take Action on Your R&D Tax Credit Opportunity

Understanding whether your construction activities qualify for R&D tax credits requires careful evaluation of your projects and processes. The right R&D tax team has experience in construction industry credits and can help finalize and secure the tax credits your construction company deserves for the advancements you've made.