Real Estate Development R&D Tax Credit Benefits for Businesses

Real Estate Development and the R&D Tax Credit

Small businesses in the Real Estate Development sector can benefit from the Research and Development Tax Credit by claiming expenses related to innovative construction techniques, sustainable design, or the development of real estate management software. Eligible activities may include prototyping energy-efficient buildings or improving project management systems. The Payroll Tax Credit for Startup R&D allows qualified startups to apply up to $250,000 per year against payroll taxes, helping to offset labor costs for employees engaged in research. This incentive provides crucial cash flow for early-stage companies, allowing for reinvestment in innovation while reducing tax burdens.

What do we do?

Are you eligible?

Pass an Audit?

Founded in 1984 by J.W. Norris under the name Reed & Co., Swanson Reed has grown to become one of the largest specialized Research and Development (R&D) tax credit consulting firms in the world. We boast numerous publications. Our artificial intelligence software, TaxTrex, is a state-of-the-art AI language model capable of preparing R&D tax credit claims in just 90 minutes. Our R&D audit insurance policy, creditARMOR, is one of the most cost-effective audit management products on the market.

If you have any questions or need further assistance, please call or email our CEO, Damian Smyth, at (000) 000-0000. Feel free to book a short conference call with one of our national R&D tax credit specialists at a time convenient for you.

Schedule a Teleconference

Real Estate Development Case Study

Business Scenario

This case study exemplifies the application of essential legislative requirements for eligible R&D activities, applied to relevant activities in the real estate development sector.

Johnson Development is one of the largest independently owned real estate development companies in America. The company has been a leading competitor in the industry since its founding in the 1980s.

In 2012, Johnson Development conducted a research and development project to create a community as a sustainable development and to overcome site-specific technical problems associated with stormwater management, water-sensitive urban design, a lot design solution for efficient land use, and unknown soil conditions.

The goal of Johnson’s R&D project was to investigate, design, and test new and improved methodologies and techniques for the sustainable development of the new community site, while overcoming site-specific technical issues.

Deadline Calculator

Research Grants

Choose Your Industry

Johnson Development’s Eligible R&D Activities

Johnson Development believed it could achieve the aforementioned objectives by implementing key research and development activities. To be eligible for the credit, Johnson had to satisfy the IRS Four-Part Test.

Background research to evaluate current knowledge gaps and determine feasibility (background research on improved techniques for sustainable development).

Developing a stormwater management system involves creating new knowledge on how to manage stormwater issues in a sustainable and environmental manner. During the scoping process, Johnson Development determined that no solution was readily available to manage stormwater issues given the site’s unique characteristics.

Activities in this phase of the project included researching and developing new knowledge on how to manage stormwater issues on a landfill site, taking into account its unique characteristics, and how to capture and treat stormwater to prevent runoff into a surrounding creek.

Design and development of a series of prototypes to achieve technical objectives (design and development of modified sustainability techniques).

Johnson Development had to design, develop, and implement methodologies for water management, including:

A stormwater management plan, including:
- Assessment of contamination levels due to topsoil erosion;
- Flora and fauna protection surveys;
- Development of a methodology to capture and treat stormwater, including water tanks and street catch basins;

A water-sensitive urban design plan, including:
- Investigations and development of methodologies to maximize water conservation (and decrease household water consumption) for urban planning, landscape planning, and architectural design applications of lot-based water tanks;
- Continuous monitoring of water levels.

Testing and data analysis to achieve reproducible results to a satisfactory standard and to test the hypothesis (testing of new methodologies).

Johnson Development conducted multiple trials, evaluated results, and made modifications to the new methodologies as needed during this phase until the technical objective was achieved. This included testing and evaluations to determine ground suitability for construction.

Continuous analysis of customer or user feedback to improve prototype design (R&S based on water quality system feedback).

Feedback was necessary to evaluate the performance capabilities of the new design in the field and to ameliorate any design flaws. Feedback activities included:

Continuous analysis and testing to improve project efficiency and safety.
Continuous development and modification to interpret experimental results and draw conclusions serving as a starting point for developing new hypotheses.
Commercial analysis and functionality review.

Live Webinar: The R&D Tax Credit in the Real Estate Development Industry

Duration: 60 Minutes

Learning objectives include:

An overview of R&D Tax Credits
Identifying Qualifying Research Activities
Defining the 4-Part Test
How to substantiate activities through documentation
Identifying Qualifying Research Expenses

Cost: FREE

Knowledge Level: Basic*

R&D Tax Credit Training for the Building and Construction Sector

directive for LBI taxpayers

Upcoming Webinar

Definition of Qualified Research

Qualified research consists of research with the intent of developing new or improved business components. A business component is defined as any product, process, technique, invention, formula, or software that the taxpayer intends to hold for sale, lease, license, or actual use in the taxpayer’s trade or business.

The Four-Part Test

Eligible activities for the R&D Credit are described in the “Four-Part Test,” which must be met for the activity to qualify as R&D.

1. Permitted Purpose: The purpose of the activity or project must be to create new (or improve existing) functionality, performance, reliability, or quality of a business component.

2. Elimination of Uncertainty: The taxpayer must intend to discover information that would eliminate uncertainty regarding the development or improvement of the business component. Uncertainty exists if the information available to the taxpayer does not establish the capability of development or improvement, the method of development or improvement, or the appropriateness of the business component’s design.

3. Process of Experimentation: The taxpayer must engage in a systematic process designed to evaluate one or more alternatives to achieve a result where the capability or method to achieve that result, or the appropriate design of that result, is uncertain at the beginning of the taxpayer’s research activities.

4. Technological Nature: The process of experimentation used to discover information must fundamentally rely on the principles of hard sciences such as physical or biological sciences, chemistry, engineering, or computer science.

What specific records and documentation did Johnson Development keep?

Similar to any tax credit or deduction, Johnson Development had to keep business records outlining its R&D activities, including experimental activities and documents to prove the work proceeded in a systematic manner. Johnson Development kept the following documentation:

Project records / lab notes
Innovation log
Conceptual sketches
Design drawings
Background research
Test protocols
Test/trial analysis results recordings
Resource allocation/usage records
Staff timesheets
Tax invoices
Receipts

Having these records on file, Johnson Development confirmed it was “compliance ready” — meaning that in the event of an audit, it could present documentation to show the progress of its R&D work, ultimately proving its R&D eligibility.