The One Big Beautiful Bill Act’s Impact on Construction

Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) introduces tax reforms that significantly impact construction companies. Below is an overview of some key provisions that may impact your organization. 

100% Bonus Depreciation Extended Permanently 

Effective for property acquired after January 19, 2025, the OBBBA restores and makes permanent 100% first-year bonus depreciation, allowing businesses to expense all or a portion of the cost of qualifying property in the year it’s placed in service.​ Eligible qualifying property includes tangible personal property, land improvements, and interior improvements to commercial buildings (including leasehold improvements).​ 

This permanent change helps encourage investment in short-lived assets, such as vehicles and machinery, and helps construction companies manage capital expenditures strategically over the long term. 

Special Depreciation Allowance for Qualified Production Property 

Under the new law, qualified property costs can be fully deducted in the year the property is placed in service, subject to a 10-year recapture period. Newly defined under the OBBBA, qualified production property refers to nonresidential real property used in a qualified production activity. Qualified production activities include the manufacturing, refining, or agricultural and chemical production of tangible personal property.  

To be eligible, construction on the property must begin between January 19, 2025, and December 31, 2028, and be placed in service before January 1, 2031. 

Increased Section 179 Expense Limit 

The OBBBA raised the maximum amount that a taxpayer can expense under Section 179 to $2.5 million, and the phase-out threshold begins at $4 million. The deduction is reduced dollar-for-dollar by the amount by which the cost of qualifying property exceeds $4 million and is fully phased out once the property is over $6.5 million. Construction companies may now immediately deduct the full cost of qualifying property, such as certain vehicles, software, and equipment, up to these new limits. 

Restored R&D Expense Deduction 

For tax years 2025-2029, the new bill allows businesses to immediately deduct domestic research and experimental (R&E) expenditures that were incurred or paid after December 21, 2024. These expenses are now fully deductible in the year they’re incurred, reversing the amortization rules introduced under the TCJA. Foreign R&E expenses still need to be capitalized and amortized over a 15-year period. 

Businesses with average gross receipts of $31 million or less will typically be able to file an amended return to apply the change retroactively to tax years beginning after December 31, 2021. Any other taxpayer that incurred R&E expenditures between December 21, 2021, and January 1, 2025, may elect to accelerate the remaining deductions for those expenditures over a one- or two-year period (beginning after December 31, 2024), by changing the accounting method. We expect the IRS to release procedural guidance on how to handle prior-year capitalized expenditures.  

This change provides a strong incentive for construction companies to invest in sustainable practices and productivity-enhancing tools by offering immediate tax benefits. 

Permanent 20% Pass-Through Deduction (Section 199A) 

Originally enacted under the Tax Cuts and Jobs Act, the 20% deduction for Qualified Business Income (QBI) was set to expire at the end of 2026. The OBBBA makes the 20% deduction permanent for pass-through businesses, including partnerships, S corporations, and sole proprietorships. Additionally, more taxpayers will be able to claim the deduction, since the phase-in range for the wage and investment limit has increased. The bill also introduces a new minimum deduction. A taxpayer will be able to deduct at least $400 if they have ownership in businesses with at least $1,000 of aggregate qualified business income for the year.  

The provision helps pass-through businesses maintain parity with the C corporation tax rate of 21%. 

Limitation on Business Interest Expense Deductions 

The business interest expense deduction was previously limited to 30% of a company’s earnings before interest and taxes (EBIT). Under the OBBBA, the deduction limitation is based on earnings before interest, taxes, depreciation, and amortization (EBITDA), allowing businesses to add back amortization, depletion, and depreciation when calculating their deduction threshold.  

Businesses can now deduct a larger portion of interest expenses, which is particularly beneficial for capital-intensive construction companies with substantial investments in real estate or equipment. 

Increased SALT Deduction Limit 

For tax years beginning January 1, 2025, through December 31, 2029, the OBBBA increases the SALT deduction cap from $10,000 to $40,000, adjusted annually for inflation. The law does not address or limit the various Pass-Through Entity Tax (PTET) workarounds enacted by various states to avoid the existing SALT cap. 

The deduction will phase down for taxpayers with modified adjusted gross income (MAGI) exceeding $500,000 (adjusted for inflation) for tax years beginning in 2025. The SALT deduction is reduced by 30% of the amount by which a taxpayer’s MAGI exceeds the $500,000 threshold, but cannot be reduced below $10,000, the minimum benefit available. 

Early Termination of Green Energy Credits 

Several green energy tax incentives widely used in construction and real estate are set to expire early under the OBBBA. The 179D energy-efficient commercial building deduction is set to expire for any construction that begins after June 30, 2026. Design-build firms, architects, and engineers who claim this deduction when designing energy-efficient systems in non-profit and government buildings will be impacted significantly. 

In addition, the 45L energy-efficient home credit is also set to expire as of June 30, 2026. The 45L credit incentivizes the construction of energy-efficient homes, and its early termination will directly impact residential developers and home builders focused on sustainable housing. 

Overtime Pay Income Tax Exemption 

Under the new law, workers who regularly exceed 40 hours per week may be eligible for a temporary above-the-line deduction for qualified overtime compensation for tax years 2025 through 2028. This deduction is capped at $25,000 for joint filers or $12,500 for individuals. It begins to phase out when an individual taxpayer’s modified adjusted gross income (MAGI) exceeds $150,000, or $300,000 for joint filers, adjusted annually for inflation. Employees can only receive this deduction if their qualified overtime compensation is reported separately on Form 1099 or Form W-2. 

Overtime compensation is defined as overtime pay required under Section 7 of the Fair Labor Standards Act of 1938—compensation paid to exceed an employee’s regular rate for any hours worked beyond 40 during the workweek.  

PCM Exception for Residential Construction Contracts Expanded 

The OBBBA significantly expands the exemption from the percentage-of-completion method (PCM) under IRC Section 460 for contracts entered into in tax years beginning after July 4, 2025. Prior to the OBBBA, home construction contracts on buildings with four or fewer dwelling units could use accounting methods such as the completed-contract method instead of the percentage-of-completion method (PCM), which allowed builders to defer revenue recognition until the homes were complete.  

Under the new law, the PCM exception is expanded to include residential construction contracts on buildings with more than four dwelling units, allowing businesses to use more favorable accounting methods on a broader range of larger-scale residential construction projects. 

Estate and Gift Tax Exemption Increase 

Starting in 2026, the new bill raises the lifetime gift and estate tax exemption amounts to $30 million for married couples filing jointly and $15 million for individual filers, with amounts indexed for inflation beginning in 2026. This will especially provide relief for privately held construction companies, whose assets may primarily be tied to closely held stock. 

Next Steps 

Provisions within the One Big Beautiful Bill Act offer numerous tax savings opportunities for construction firms, and now is the time to plan. Reach out to your tax advisor to learn how these provisions may affect you or contact us using the form below for assistance.