Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) made permanent numerous tax provisions that were set to expire at the end of 2025 as enacted under the Tax Cuts and Jobs Act (TCJA). In addition, numerous other provisions were introduced or modified, which will have a significant impact on the tax planning of construction contractors.
Read Also: One Big Beautiful Bill Act Becomes Law
Accelerated Depreciation & Immediate Expensing
Three main provisions included in the OBBBA allow contractors to immediately expense certain capital expenditures.
100% Bonus Depreciation
Construction companies will be able to fully expense certain capital expenditures, such as equipment, office furnishings, and certain software. This will apply to qualifying assets that are placed in service on or after Jan. 19, 2025, and is made permanent thereafter. The bonus depreciation rate for 2025 had been 40% before the passage of the OBBBA.
Special Depreciation For U.S. Production Facilities
Certain qualified nonresidential real estate used in the manufacturing or production process may be eligible for full expensing. To qualify, the building construction must begin between Jan. 19, 2025, and Dec.31, 2028, and be placed in service by Dec. 31, 2030. Construction companies that have a building for manufacturing or fabrication may benefit from this provision.
Section 179 Expensing
The limitations for immediate expensing under Section 179 have been increased to $2.5 million (previously $1.25 million) with a phase-out of the limitation beginning at $4 million (previously $3.13 million), and is effective for tax years beginning after Dec. 31, 2024.
Impact On Construction Companies
The ability to immediately expense capital expenditures will result in improved cash flow and the ability to further invest in equipment, machinery, and property for future growth. The provision also provides certainty on immediate expensing and will improve the ability to budget and forecast.
Qualified Business Income Deduction (199A Deduction)
The TCJA introduced a 20% deduction on qualified business income from pass-through entities (partnerships and S Corporations) and sole proprietorships under Section 199A. The deduction was originally set to expire on Dec. 31, 2025, and has been made permanent through passage of the OBBBA.
Impact On Construction Companies
The highest federal income tax rate a pass-through entity owner will pay on their qualified business income is 29.6% versus a 39.6% rate if the provision were allowed to expire. The provision provides permanent tax reductions and certainty in future planning.
Residential Construction & Usage Of The Percentage-of-Completion Method
Under the previous law, home construction contracts (i.e., a building with four or fewer dwelling units) were able to use the completed contract method for long-term contracts. This would allow contractors to defer recognizing profits on jobs when “substantially complete.” Under the OBBBA, the ability to use the completed-contract method has been expanded to include residential construction contracts. These can include: apartment and condominium complexes, prisons, long-term or assisted care living facilities, and student housing. A contractor of any revenue size would be able to use this method for residential contracts.
Read Also: Major Tax Benefit For Residential Contracts Won Through The One Big Beautiful Bill
Impact On Construction Companies
This method would allow the deferral of income into future periods, preserving cash flow for contractors building large residential developments.
No Tax On Overtime
No tax on overtime starts in 2025 and terminates at the end of 2028. As signed into law, qualified overtime pay eligible for tax-free treatment is capped at $12,500 per year (or $25,000 for joint filers). The above-the-line deduction begins to phase out for single filers with modified adjusted gross income above $150,000 (or $300,000 for joint filers).
Impact On Construction Companies
Although not a direct tax benefit to the contractors themselves, this will provide additional take-home pay to employees. This could increase the labor pool or the willingness of employees to work additional hours during peak periods.
Termination Of Certain Green Initiatives
Although many provisions were favorable, two provisions applicable to contractors are set to expire.
179D: Energy Efficient Commercial Building Deduction:
This deduction was afforded for the design and/or construction of energy-efficient systems in certain government and non-profit buildings. In some cases, the deduction could equal $5/square foot of the project. This deduction will now expire for any construction beginning after June 30, 2026
45L: Energy Efficient Home Credit
This credit was awarded to homebuilders and residential developers when building energy-efficient homes. The maximum amount was $5,000 per dwelling unit. This credit is also set to expire for any construction beginning after June 30, 2026.
Impact On Construction Companies
Construction companies or service providers who utilize these deductions and credits should review their backlog and push to begin energy-efficient projects before the expiration date.
Limitation On Business Interest Deduction
The TCJA capped net business interest deductions at 30% of Adjusted Taxable Income, impacting debt-heavy construction companies. Adjusted Taxable Income had been Earnings Before Interest and Taxes (EBIT), but now has been expanded to be 30% of tax-based EBITDA, meaning depreciation and amortization can now be computed in ATI when calculating the limitation.
Impact On Construction Companies
Highly leveraged or capital-intensive companies will now be able to deduct interest that may have been previously disallowed. This will again increase cash flow for. The provision has also been made permanent.
Conclusion
The OBBB had impacts on numerous other tax provisions, which you can read more about here. GBQ will continue to publish additional guidance on the tax bill. Contact Ryan Kilpatrick, Emma Giroux, or a member of your GBQ service team for more information on these provisions.
By Ryan Kilpatrick, CPA, CCIFP, Tax and Business Advisory Services
Looking For More Insight Into The OBBBA? Check Out These Resources:
One Big Beautiful Bill Act Becomes Law
One Big Beautiful Bill Act Includes Changes For Employee Benefits
OBBBA Provisions To Impact Real Estate, High-Net-Worth Property Owners
