A common question is whether energy modeling can qualify as research and development for the federal R&D tax credit under Section 41. The short answer is that energy modeling may be part of qualified research when it is used to evaluate alternatives to resolve a technical uncertainty about building or system performance. Routine energy modeling for compliance or estimation generally is not qualified research. This page explains the framework in general terms. It is educational and is not individualized advice. For the foundational framework, see our page on qualified research.
When Energy Modeling May Warrant Review
Energy modeling may warrant review when it is used as part of a process of experimentation to evaluate alternatives. Under the four-part test, the work must be for a permitted purpose, be technological in nature, be intended to eliminate uncertainty, and be conducted through a process of experimentation.
Common scenarios that may warrant review include:
- Alternative system evaluation — using energy modeling to evaluate alternative building or system designs to resolve uncertainty about which can achieve the required performance.
- New system — using modeling to resolve uncertainty about whether a new system can achieve the required energy performance.
- Parameter optimization — using modeling to evaluate alternative parameters to resolve uncertainty about which can achieve the required performance.
- New climate — using modeling to resolve uncertainty about how a system performs in a new climate.
Routine Modeling vs. Modeling as Research
A central distinction is between routine energy modeling and modeling as research:
- Routine modeling — using standard energy modeling tools for compliance, estimation, or verification. There is no technical uncertainty about whether the modeling will work. This is routine modeling, not research.
- Modeling as research — using modeling to evaluate alternatives to resolve a technical uncertainty about performance, where the performance is not established. This may warrant review.
Hypothetical Example
Consider a company that is developing a new building-envelope system and is uncertain whether any available design can achieve the required energy performance. The company uses energy modeling to evaluate alternative designs, tests each through simulation, and systematically varies the approach to resolve the uncertainty. This use of modeling to evaluate alternatives to resolve a technical uncertainty may warrant review as qualified research.
By contrast, if the same company runs a standard energy model for code compliance on a known building design, that is routine modeling, not research.
This example is illustrative only and does not state that the activity definitely qualifies.
Documentation That May Help
Records that can help support energy modeling claims include modeling records identifying the uncertainty and alternative approaches, simulation results, and records of how results informed design decisions. For more, see our page on R&D tax credit documentation.
Key Takeaway
Energy modeling may be part of qualified research when it is used to evaluate alternatives to resolve a technical uncertainty about building or system performance. Routine energy modeling for compliance or estimation generally is not qualified research. Because the distinction is fact-specific, professional review is appropriate before claiming the credit.