Construction contractors have a lot to think about now that President Trump has signed the One Big Beautiful Bill Act (OBBBA) into law. The legislation contains provisions that will affect business planning and operations well into the future, say financial advisors. More than one urged contractors to quickly match strategies and operations with the legislation for a solid future.
"The OBBBA offers significant planning opportunities for construction firms," accounting firm Kittell Branegan and Sargent (KBS) blogged.
The legislation "creates avenues to reduce liability and boost profitability," said the firm. Those opportunities fall under a wide range, from equipment purchasing and entity structuring to employee engagement and tax benefit education, it added.
Brian P. McGuire, president and CEO of the Associated Equipment Distributors' (AED), had high praise for the bill's provisions.
"Certainty is paramount for all businesses, and this is exactly what OBBBA provides equipment dealers, manufacturers and our customers," said McGuire.
Capital investment incentivizing will "help unleash the economy," he said, by making these provisions permanent. "AED members can worry less about an ever-changing tax code and focus on supplying and servicing the equipment needed to build, feed and fuel America."
The law's provisions "are poised to influence how construction firms plan, invest and operate for years to come," said Carl Oliveri of Grassi Advisors.
The construction practice leader and a partner at Grassi, Oliveri analyzed the OBBBA and picked apart the provisions that most affect the construction industry.
Permanent 100 Percent Bonus Depreciation
The OBBBA permanently reinstates 100-percent bonus depreciation for qualifying property placed in service on or after Jan. 19, 2025.
Oliveri noted this includes construction equipment, vehicles and certain improvements to nonresidential real property. The provision applies to both new and used property and ends the phase-down schedule in place previously.
"For tax purposes, contractors can now fully expense the cost of equipment, vehicles and qualifying property in the year placed in service," said Oliveri.
Fully expensing those costs results in greater certainty in long-term planning and frees up cash flow for working capital purposes, he added.
"This may be especially valuable for contractors upgrading or expanding their fleets."
However, equipment not manufactured or purchased domestically could face tariffs, which would be part of the cost to write off, noted Oliveri.
Expanded Section 179 Expensing
Effective for tax years beginning after Dec. 31, 2024, the maximum Section 179 deduction is increased to $2.5 million.
This, said Oliveri, is a phase-out threshold of $4 million, and both amounts are indexed for inflation. It is similar to the bonus depreciation rule.
Contractors can immediately expense the full cost of qualifying equipment, software and certain improvements to nonresidential property.
"The expanded limits provide construction firms with more flexibility to manage their taxable income," said Oliveri. "Pairing Section 179 with bonus depreciation may offer a more strategic approach to maximizing large capital investments and managing state taxable income."
Qualified Production Property (QPP) Incentive
The OBBBA introduces a new 100 percent deduction for Qualified Production Property (QPP): a category of newly constructed nonresidential real property primarily used for manufacturing, production or refining tangible personal property.
To qualify, though, construction must begin after Jan. 19, 2025, and the property must be placed in service before Jan. 1, 2031.
According to the rule, the deduction applies to new buildings and improvements. However, it excludes property used for office, administrative, lodging, parking, sales, research, software development or engineering functions.
"This provision provides a powerful incentive for companies to invest in new production facilities," said Oliveri.
Contractors fabricating their own materials for use on a job site may have a significant tax planning opportunity to reinvest in their business. These reinvestments can mean upgrading production facilities while utilizing the full tax benefit under the qualified production property (QPP).
PTET Deductibility Preserved
The OBBBA preserves federal deductions for state and local taxes paid at the entity level under elective Pass-Through Entity Tax (PTET) regimes.
PTET programs were designed to bypass the $10,000 state and local tax (SALT) cap applied at the individual level under the 2017 tax cuts and jobs act.
However, OBBBA increases the SALT cap to $40,000. That spells relief for business owners who face SALT above the expanded limit.
The PTET provisions will continue to provide relief for pass-through businesses in high-tax jurisdictions, such as New York and New Jersey.
Oliveri said for construction companies structured as partnerships or S corporations, this preserves a valuable federal deduction for state taxes.
In turn, it "allows businesses retain more corporate capital to deploy into projects in lieu of utilizing lines of credit at higher interest rates," he said.
Expanded Interest Deduction
The OBBBA reinstates the earnings before interest, taxes, depreciation and amortization (EBITDA) based limitation for tax years after Dec. 31, 2024.
This change reverses limitation in effect since 2022, allowing recapture of depreciation, amortization and depletion. This recapture is allowed in calculating adjusted taxable income (ATI) for the 30 percent cap on business interest deductions.
Contractors utilizing lines of credit for operating needs may now deduct a greater amount of interest expense, improving their after-tax cash position.
"Firms with significant leverage should model their 2025 interest positions to evaluate whether restructuring or shifting interest to related entities could enhance deductibility," said Oliveri.
Research and Development (R&D) Expensing
The OBBBA repeals the Tax Cuts & Jobs Act (TCJA) requirement to amortize domestic research and development expenditures over five years.
That means businesses may now immediately deduct eligible U.S.-based R&D costs for tax years beginning after Dec. 31, 2024.
Contractors with average gross receipts of less than $31 million may elect to apply the new rules retroactively to tax years beginning after 2021. This retroactive relief can be achieved by amending prior returns; through a one-time "catch-up" deduction in 2025; or spread over 2025 and 2026.
Foreign R&D expenditure remains subject to a 15-year amortization period, according to the legislation.
Contractor's investing in design innovation, engineering processes or construction technology may now fully deduct qualifying R&D costs in the year incurred.
Smaller and mid-sized firms should assess whether they are eligible for retroactive deductions under the catch-up provision. Otherwise, they must choose to amend prior years' returns in order to recoup taxes paid.
Exception to Percentage-of-Completion Method for Residential Construction
The Percentage-of-Completion Method (PCM) now includes residential construction contracts involving more than four dwelling units. This includes multi-family buildings and condominium developments. Previously, this exception applied only to buildings with four or fewer units.
Oliveri said the change makes for a broader range of residential projects to use the completed-contract method. This in turn enables contractors "to defer income recognition until substantial completion," he added.
"This may result in greater flexibility in tax planning and improved cash flow for developers and builders engaged in larger-scale residential construction."
Opportunity Zone Incentives
The Opportunity Zone (OZ) program becomes permanent under the OBBBA. It replaces the original sunset date of Dec. 31, 2026.
Rolling 10-year designation cycles, beginning on July 1, 2026, are provided for. Governors can name new zones every 10 years, each lasting a decade.
The law also introduces enhanced compliance and reporting requirements for Qualified Opportunity Funds (QOFs). This includes annual IRS disclosures and public reporting on community impact.
"The extended OZ framework may increase project volume in designated areas, in affordable housing, infrastructure and commercial development," said Oliveri.
All this while offering investors long-term tax incentives that drive demand for construction services. Contractors should track regional OZ designations, he added.
They also should "consider partnering with developers or funds targeting these areas to capture future project opportunities."
Estate, Gift Tax Exemption Made Permanent
The OBBBA permanently increases the federal lifetime estate, gift and generation-skipping transfer (GST) tax exemption to $15 million per individual.
The figure goes up to $30 million per married couple and is indexed annually for inflation beginning in 2026. The provision replaces the prior exemption, which was scheduled to sunset and revert to approximately $7 million per person.
"This change provides long-term certainty for high-net-worth individuals and family-owned construction businesses engaged in succession planning," said Oliveri. "The expanded exemption offers a valuable opportunity to transfer ownership interests, real estate or other appreciating assets with reduced estate tax exposure."
How Construction Companies Can Benefit
Oliveri urged businesses in the construction industry to assess how these provisions may impact their operations and tax strategies.
"To stay ahead, businesses should evaluate their accounting methods, including contract types and gross receipts thresholds," he said.
These evaluations should identify opportunities for method changes or simplification. Businesses should update capital budgets in light of permanent 100-percent bonus depreciation and expanded Section 179 expensing.
Eligibility for R&D expensing should be assessed, especially for firms with under $31 million in average gross receipts that may benefit from retroactive deductions.
"Model interest expense limitations and consider restructuring debt or operations to preserve deductibility," said Oliveri. "Review entity structure and PTET participation to maximize pass-through tax benefits under the new rules."
He urged contractors to revisit succession and ownership transition plans, taking into account the permanent estate and gift tax exemption.
"The OBBBA represents a significant shift in federal tax policy with far-reaching implications for the construction industry," said Oliveri. "As with any significant legislative change, thorough planning and scenario modeling are essential to capitalize on new opportunities and adjust your strategy accordingly." CEG
