Video Game Development R&D Tax Credits

Level up your innovation and claim what you’ve earned. Video game developers and studios in the U.S. are constantly engineering novel game engines, performance systems, cross‑platform compatibility, immersive gameplay mechanics and backend infrastructures. Many of these qualify for the federal R&D Tax Credit under IRC §41 and relevant state credits.

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Examples of qualifying activities in video game development

Game Engine & Graphics Pipeline Development Custom rendering engines, real‑time ray tracing performance optimisation, memory/latency work, cross‑platform adaptation.
Multiplayer/Backend Infrastructure Engineering Building scalable server architectures, matchmaking systems, latency/throughput modelling, network simulation under load.
AI/ML for Gameplay & Player Behaviour Training adaptive AI behaviours, reinforcement learning for NPCs, dynamic difficulty balancing, simulation/testing of algorithms.
Cross‑Platform & Hardware Adaptation Testing and adapting game code across consoles, PC, VR/AR headsets, mobile; performance optimisation, input system redesign, controller/VR integration.
Accessibility & Interaction Innovation Designing new control systems, haptic feedback systems, AR/VR immersion trials, gameplay mechanics experimenting with new input/output paradigms.

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What qualifies as R&D in Video Game Development?

To qualify, game‑dev R&D must:

Aim at a permitted purpose — such as a new game engine, cross‑platform performance architecture, AI driven gameplay system, multiplayer/network backend, or immersive rendering pipeline.
Tackle technical uncertainty — for example: “Can we build a rendering pipeline that supports both VR and standard consoles with frame‑rate >120fps?”, “Will our multiplayer backend scale to 100k users with latency <50ms?”, “Can AI adapt dynamically to player behaviour across platforms reliably?”
Use a process of experimentation — building prototypes, performance/latency trials, cross‑platform testing, AI training iterations, user/testbed trials, graphics/rendering engine tweaks.
Be technological in nature, grounded in computer science, software engineering, graphics/algorithm development, network infrastructure, AI/ML, performance optimisation.

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Qualified Research Expenses (QREs)

Expense Type

Examples in Game Development

Eligibility Notes

Wages

Game engine developers, graphics/AI engineers, network backend engineers, test/trial coordinators

Research/experimental roles qualify

Supplies

Test hardware (consoles, headsets), prototype devices, dev kits, performance test rigs

Materials used in development/experiment

Software / Cloud

Cloud compute for training AI, simulation tools, rendering test environments, network load testers

Eligible if used for qualified research

Contract Research

External labs for performance/latency testing, graphics engine consults, AI model development vendors

Often ~65% of contractor costs may qualify

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Roles commonly involved in qualifying activities

Game Engine Architects & Graphics Engineers
AI/ML Engineers for Gameplay & Player Simulation
Network/Backend Engineers for Multiplayer & Server Infrastructure
Performance/Test Engineers & Cross‑Platform Specialists
VR/AR Integration Engineers (if applicable)
External research partners or performance labs

What does not qualify

Standard game assets production (art, animation) without technical innovation
Porting a game to a new console without new performance/design experimentation
Routine bug‑fixing, standard QA, marketing or administrative tasks
Hardware purchases not tied to documented experimentation or prototype testing

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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.

Be sure to maintain:

Project summaries/hypotheses (e.g., “Can our new engine achieve 120 fps on VR headset X and scale to multi‑platform under 50 ms latency?”)
Prototype and performance test logs, iteration history, failure logs, cross‑platform benchmarks
Staff time logs by project/role, payroll tracking of R&D tasks vs routine tasks
Cloud/training usage records, dev‑kit/hardware logs, contractor/consultant agreements This helps satisfy the Four‑Part Test: permitted purpose, technical uncertainty, process of experimentation, technological nature.

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Frequently Asked Questions

Can game development studios claim the R&D Tax Credit?

Yes — if they engage in genuine experimentation to solve technical challenges in game engines, networking, rendering, AI or cross‑platform performance, not just standard game production.

What kind of expenses are eligible?

Wages for experimental development staff, supplies/dev‑kits/hardware for testing, cloud/simulation costs, contract research labs/vendors.

What kinds of game‑dev projects qualify?

Examples: new rendering engines, multiplayer backend optimisations, VR/AR integration, AI gameplay innovations, cross‑platform performance experiments.

What activities don’t qualify?

Art/asset creation without technical innovation, porting without experimentation, standard QA/bug‑fixes, marketing or business tasks.

How should a game studio document R&D work?

Project charters with hypotheses, performance/test logs, iteration/failure history, staff time logs, hardware/dev‑kit usage, external research agreements.