Space Exploration R&D Tax Credits

Fuel your mission with tax credits. From launch systems and orbital logistics to deep‑space communication and in‑space manufacturing, companies operating in space exploration are often eligible for the federal R&D Tax Credit under IRC §41. If your team is designing, testing, or troubleshooting space technologies under technical uncertainty — there’s a good chance those efforts qualify.

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Examples of Qualifying Space R&D Activities

Reusable Launch Vehicle Development Designing and testing reusable boosters, conducting re-entry simulations, evaluating turnaround timelines, running thermal protection experiments.
In-Space Manufacturing & Assembly Systems Prototyping microgravity 3D printing tools, robotic arms, ISRU systems (e.g., regolith-to-structure), and validating cycle-time, material flow, and bonding strength in orbital testbeds.
Autonomous Docking, Rendezvous & Refueling Developing onboard vision/targeting algorithms, LIDAR/IR sensing integration, autonomous control schemes, and orbital constraint navigation under time delay.
Radiation-Hardened Electronics & Structures Testing payload and subsystem resistance to solar flares or Van Allen exposure, analyzing data retention after burst events, validating ECC protocols.
Orbital Debris Avoidance & Servicing Systems Building adaptive thrust-vector systems, deploying robotic arms or nets for active debris capture, or testing on-orbit refueling and maintenance payloads.
Lunar & Deep-Space Mission Simulation Designing simulation environments to replicate long-duration deep space exposure, reduced-gravity response, or long-latency comm networks (DTN).

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What Qualifies as R&D in Space Exploration?

To qualify, your space R&D must:

Aim at a permitted purpose — like building or improving a spacecraft system, propulsion subsystem, space-based communication network, or in-orbit manufacturing platform.
Address technical uncertainty — such as, “Can we develop autonomous rendezvous under orbital drift conditions?”, “Will this material survive repeated thermal cycling in cislunar orbit?”, “Can we reduce propellant use while meeting mission delta‑V?”
Use a process of experimentation — through simulation, hardware iteration, vacuum testing, thermal/vibration chambers, or suborbital trials.
Be technological in nature — rooted in aerospace, propulsion, materials, avionics, control systems or autonomy.

This includes both government and commercial spaceflight programs — as long as you retain risk and rights over the R&D.

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Qualified Research Expenses (QREs)

Expense Type

Space Industry Examples

Eligibility Notes

Wages

Propulsion developers, systems engineers, spaceflight control teams, autonomy/software R&D

Direct, support and supervisory staff may qualify

Supplies

Prototype components, testbed materials, high-temp alloys, shielding

Must be consumed during experimentation

Software / Cloud

Orbital simulation tools, mission planning models, autonomy libraries

Qualifies if used in technical research

Contract Research

Universities or labs testing radiation exposure, thermal/vacuum tolerance, propulsion cycles

Often claimable if rights/risk are retained

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Common Roles in Qualifying Space R&D

Space systems engineers and mission architects
Autonomy/control engineers
Propulsion R&D specialists
Thermal/environmental simulation staff
Robotics engineers (on-orbit servicing, mobility)
Aerospace test lab operators

What does not qualify

Launch or mission operations using already-proven hardware
Passive use of off-the-shelf technologies without redesign/testing
Sales, compliance, admin, or public affairs roles
Capital equipment unrelated to testing (e.g., trucks, office servers)
Fully reimbursed work with no retained IP or technical risk

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Compliance and Documentation

§174 Update

Following the One Big Beautiful Bill Act (OBBBA) signed July 4, 2025, §174 now allows immediate expensing of domestic research expenses for tax years beginning on or after January 1, 2025. Taxpayers may also elect optional amortization under new §174A. Foreign research expenses must still be amortized over 15 years. This is separate from the §41 credit but impacts overall tax planning.

‍What to Document:

System-level design challenges and mission requirements
Simulation logs (docking, orbit decay, latency buffering)
Vacuum/thermal chamber results, pre-launch verifications
Robotics/autonomy tuning logs and rework versions
Time sheets for engineers and test crew
Logs of failed test outcomes or alternate system paths

Proper documentation proves experimentation — and supports claims during an IRS or state review.

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Frequently Asked Questions

Do space technology companies qualify for the R&D Tax Credit?

Yes — if they’re creating or improving launch vehicles, communication systems, orbital robotics, or in-space operations under technical uncertainty, and are documenting the research effort.

What expenses are eligible?

Engineering/test personnel wages, consumed supplies (prototypes, shielding), relevant software, and outside research contracts — as long as your company retains risk and technical control.

What doesn’t qualify?

Routine launches or ops without experimentation, using commercial hardware with no change/testing, or reimbursed government research with no rights or risk.

How much can a space exploration company save?

Well-documented firms often recover 10% to 15% of their qualified expenses — and more when layering in state credits

How should space companies document research?

Focus on simulation vs. field test logs, version control, subsystem test reports, time tracking by project, and documentation of rework/redesign based on failed criteria or test outcomes.