How mortgage banking qualifies for the r&d tax credit

David Finley | Business Development Director, Northern Region

May 1, 2020. 4 min read

The mortgage banking industry has quietly become more and more dependent on software development over the last decade.  Due to the fragmentation of the platforms and services available that are integral to the origination, servicing, and financing of loans, mortgage banking companies have had to rely more and more on their own ability to develop software solutions. In this sense, the research and development tax credit has become an integral part of tax planning and strategy for the industry, often allowing companies to recoup hundreds of thousands of dollars on money they are already spending.


Surprisingly, a lot. The low hanging fruit would be any development targeted toward external users. An example of this type of development might be a platform where users can manage their loans, make payments, or make administrative changes. Platforms like these are considered external software because they are outward facing. In addition to this, often, platforms that serve a wide range of users with a robust feature set of functionalities are often largely affected by external forces such as regulatory changes, security updates, connectivity issues, and performance bottlenecks. Unique development to solve these types of problems are a great indicator of what qualifies and often comes in a variety of forms including conceptual development, wire framing, coding, and user acceptance testing.


Generally, the IRS considers customization of an existing available platform for internal use to not qualify. Customization is often a blurred line. The rule of thumb is that if a company secures rights to utilize or purchase commercially available software, then customizes its look and feel while leveraging all of the functionality of the platform that existed, this does not qualify. Further, software that is utilized for purely internal purposes or administrative functions needs to pass a much harder test that evaluates the software against other competing software options in the market.

Qualified Research Activities for mortgage Banking Companies

  • Development of pricing engines for loan products
  • Development of Loan Origination System (LOS) platforms
  • Development of both front end and back end systems
  • Development of data warehouses and/or database systems
  • Development and use of simulation environments for testing
  • Development of data analysis and validation tools
  • Development and integration of Security Information and Event Management (SIEM) automation
  • Development of conceptual software wireframes
  • Validation of code via integration, performance, systems, interface, regression, load, stress, security, and reliability testing
  • Creating scalable platforms for future technology and software development

Over the last decade, mortgage banking companies have taken on the risk to develop applications that better service their clients and improve their own processes. The R&D tax credit gives companies a mechanism to recover some of those expenses in the form of a tax credit which will reduce their tax bill dollar-for-dollar. With the record year that the industry is having, this is as timely as ever.

R&D & Energy for Real Estate Tax Accounting Methods

Construction and real estate firms often ask us: “How do we qualify for the R&D tax credit?” Our boilerplate answer is to review the 4-part test below to ensure you have a qualification marker that covers the activities you are performing to create or improve your products or processes.

By Brian Coddington, Max Vignola, Imran Syed | 15 Nov

New Small Firm Cost Seg Opportunities

Cost segregation is a highly beneficial and widely accepted tax compliance strategy utilized by commercial real estate owners and tenants to accelerate depreciation deductions, defer tax and improve cash flow.

By Brian Coddington | 12 April

Can the R&D Tax Credit Be Used to Offset the AMT?

The Protecting Americans from Tax Hikes (PATH) Act of 2015 includes provisions that allow certain taxpayers to offset their AMT liability with the R&D tax credit for taxable years beginning on or after Jan. 1, 2016.

By Alex Pak | 7 April

How the R&D Tax Credit Has Expanded Over the Years

Governments typically incentivize private industry to produce research and development (R&D) as a strategic tool to advance their economies.

By Deb Roth | 8 April

The Nine-Point Plan for Handling §179D

Section §179D can help your commercial real estate clients reduce taxable income and increase cash flow significantly.

By Source Advisors | 24 March

Reconciliation bill likely to have a tax impact on energy-efficient buildings

It’s no secret that climate change is a top priority for the current administration. As part of the hotly debated tax and spending legislation moving through Congress

By Source Advisors | 28 October

How Integrators Can Take Advantage of Incentives and Tax Savings

Integrators who have experienced a dip in business during the pandemic may be able to take advantage of a few lesser known tax credits and income tax deductions.

By Source Advisors | 11 August

Subscribe for our newsletter
to stay up to date
Email address

Related Articles