Signed into law early last month, the One Big Beautiful Bill Act (OBBBA) extends many provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 and establishes several new tax and spending policies. This article highlights the provisions of the OBBBA applicable to the construction industry.
QBI Deduction Extended
The OBBBA permanently extends the Qualified Business Income (QBI) deduction, which allows eligible taxpayers to deduct up to 20% of their qualified business income. The permanent extension includes additional modifications that expand the phase-in range of the wage and investment limitation and introduce a minimum deduction for businesses in which the taxpayer materially participates.
100% Bonus Depreciation Restored
The OBBBA permanently restores 100% bonus depreciation for qualified property placed in service as of January 19, 2025, reversing the planned phase-down of this provision. This change will benefit construction companies investing in new equipment or machinery, allowing these purchases to be written off immediately.
Depreciation for Qualified Production Property
The OBBBA also introduces an elective first-year 100% depreciation deduction for “qualified production property,” that is, nonresidential real property used in manufacturing or production activities.
Increased Section 179 Deduction
The Section 179 deduction allows businesses to deduct the full cost of qualifying equipment in the year it is placed into service. The OBBBA increases the Section 179 expensing limit to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million (new phasedown threshold).
Immediate R&D Deductions Restored
U.S. research and development expenditures, previously required to be amortized over five years, can now be deducted in the year paid. Small businesses averaging $31 million or less in annual gross receipts may elect to apply the change retroactively for tax years beginning after December 31, 2021. All businesses that made domestic R&D expenditures between 2022 and 2024 may elect to accelerate the remaining deductions for those expenditures over one or two years. Unlike domestic expenditures, foreign R&D costs continue to require a 15‑year amortization under Section 174.
This provision will benefit construction companies looking to improve building processes, experiment with new technologies, innovate design processes, and more.
Limitation on Business Interest
The OBBBA reinstates the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) limitation under Sec. 163(j), effective for tax years beginning after December 31, 2024. Adjusted taxable income (ATI) will be computed without regard to the deduction for depreciation, amortization, or depletion.
Low-Income Housing Tax Credit (LIHTC) Expanded
The OBBBA permanently increases allocations for 9% LIHTC by 12%, and also permanently reduces the private activity bond financing requirement for 4% LIHTC from 50% to 25%, effective January 1, 2026. This expansion is expected to increase demand for affordable housing construction significantly.
Qualified Opportunity Zones and New Markets Tax Credit
The OBBBA makes the Opportunity Zones (OZ) tax incentive permanent, with several modifications, including a narrower definition of “low-income community” and expanded reporting requirements. Every ten years, state governors will propose new opportunity zones. The bill also includes additional incentives for rural opportunity zones. The OBBBA also makes the Sec. 45D New Markets Tax Credit (NMTC) permanent. These provisions offer incentives for investment and construction in economically distressed communities.
Exception from Percentage-of-Completion Method
The OBBBA expands the exception from the percentage-of-completion method requirement to certain residential construction contracts.
Removal of Clean Energy Incentives
The OBBBA terminates, phases out, or curtails many clean energy tax incentives, including the energy-efficient commercial buildings deduction (section 179D) and the new energy-efficient home credit (Section 45L). The removal of these incentives will require some construction firms to restructure their business strategy.
What’s Next?
Overall, the OBBBA expands opportunities for construction companies to reduce their taxes, improve cash flow, and plan for growth. RBT CPAs will continue to provide clients with updated information as IRS guidance on the OBBBA is issued. Meanwhile, if you have any questions about the recent tax law changes and how they could affect you, please don’t hesitate to reach out to our construction accounting professionals at RBT CPAs. Our team is here to support all of your tax, audit, accounting, and advisory needs. Give us a call today to find out how we can be Remarkably Better Together.