Key Details: The One Big Beautiful Bill Act (OBBBA) introduces several tax law changes that directly affect construction firms. From the accelerated phase-out of energy-efficiency incentives to the introduction of a new Qualified Production Property deduction and the permanent expansion of Opportunity Zones, the legislation reshapes how companies plan capital investments, manage project accounting, and evaluate financing structures. Additional updates including permanent 100% bonus depreciation, expanded Section 179 expensing, restored EBITDA-based interest deductibility, and a permanent Qualified Business Income deduction—create both new opportunities and critical deadlines for contractors, developers, and owners to monitor.
Energy-Efficient Tax Incentives Phased Out
The OBBBA accelerates the expiration of two major energy-related tax incentives: the Section 179D deduction for energy-efficient commercial building property and the Section 45L credit for energy-efficient residential construction. Both provisions will no longer apply to projects starting after June 30, 2026. Projects initiated before this date can still qualify, provided they meet existing eligibility criteria.
For construction firms, these incentives have supported energy-efficient building practices and often reduced the net cost of compliance with energy codes. However, it’s important to note how the §179D deduction works in practice:
- Developers/owners of qualifying commercial buildings generally claim the deduction directly.
- General contractors, engineering firms, and architecture firms can only receive the §179D deduction when working on projects owned by entities that do not pay federal income tax, such as public schools, government facilities, or nonprofit buildings. In these cases, the tax-exempt owner allocates the deduction down to the design or construction team.
Because the OBBBA accelerates the cutoff date, project start timelines remain critical, particularly for developers, general contractors, and design-build teams engaged in energy-conscious construction. Coordination between design, engineering, and field operations will be essential to ensure qualifying projects begin before the deadline.
Qualified Production Property (QPP) Deduction
A new provision in the OBBBA offers 100% expensing for certain newly constructed nonresidential real property classified as Qualified Production Property (QPP). To qualify:
- Construction must begin after January 19, 2025.
- The property must be placed in service before January 1, 2031.
- The property must be used for manufacturing, production, or refining tangible personal property.
Exclusions apply for office, administrative, lodging, parking, sales, research, and engineering areas. Recapture provisions may require repayment if the property’s use changes within a specified period.
For construction companies—particularly those with in-house production capabilities like stone fabrication, metalwork, or pre-cast concrete—this provision creates a unique opportunity. It may also apply to expansions or upgrades of existing facilities, provided they meet the timing and usage requirements. Careful documentation of qualifying activities and costs will be essential.
Opportunity Zone (OZ) Program Made Permanent
The OBBBA makes the federal Opportunity Zone program permanent and changes how designations are managed. Beginning July 1, 2026, governors may nominate new Opportunity Zones every 10 years, with each designation lasting for a decade. The new rules also introduce enhanced incentives for rural OZs, including larger basis step-ups and reduced improvement requirements.
This change could result in a broader pool of eligible development sites over time. For construction firms, the ongoing renewal of OZ designations may open new project opportunities, particularly in underserved communities. However, updated compliance and reporting requirements for Qualified Opportunity Funds (QOFs) will require more stringent tracking of project impact and investment activity.
Percentage-of-Completion Method (PCM) Exception Expanded
Previously, the exception to the Percentage-of-Completion Method (PCM) applied only to smaller residential projects with four or fewer dwelling units. The OBBBA broadens this rule to cover larger residential construction contracts involving more than four units, such as apartment complexes, multifamily housing, and condominium developments.
For a construction company to qualify under this exception:
- The contract must be classified as a residential construction contract (i.e., at least 80% of the estimated costs of the contract are for dwelling units).
- The project must involve more than four dwelling units, exceeding the old limitation.
- Contractors must be able to demonstrate that revenue can appropriately be deferred until the project reaches substantial completion.
If qualified, companies may use the completed-contract method (CCM) instead of PCM, deferring revenue recognition until the project is substantially finished. This allows firms working on multi-year residential projects to align tax obligations more closely with project cash flow.
Contractors should note, however, that determining “substantial completion” remains a key requirement and may vary by project. Additionally, companies will need to confirm whether their state tax rules conform to the new federal exception.
Additional General Business Provisions Relevant to Construction
For additional information and action items for business owners, read our breakdown of the OBBBA for businesses here.
100% Bonus Depreciation – Permanent
The OBBBA permanently reinstates 100% bonus depreciation for qualifying property placed in service on or after January 19, 2025. This provision applies to both new and used property, including construction equipment, vehicles, modular building systems, and certain improvements to nonresidential real property.
Assets covered by a binding written contract signed before January 20, 2025 do not qualify. By eliminating the phase-down schedule, the legislation provides long-term certainty for businesses planning large capital purchases.
Section 179 Expensing Expansion
The OBBBA makes a significant update to Section 179 expensing, a provision that allows businesses to deduct the full purchase price of qualifying assets in the year they are placed in service, rather than spreading deductions out over time.
Beginning with tax years after December 31, 2024, the maximum Section 179 deduction will increase to $2.5 million, with a phase-out threshold starting at $4 million. Both amounts will continue to be indexed annually for inflation.
Section 179 applies to a wide range of qualifying assets, including:
- Construction equipment and machinery
- Business vehicles
- Off-the-shelf software
- Certain improvements to nonresidential real property
The expanded limits create more room for small and mid-sized construction firms to immediately expense capital investments without hitting deduction ceilings. For businesses planning to invest heavily in new equipment, technology, or property improvements, this change provides greater flexibility and improved cash flow.
Section 179 can also be combined with 100% bonus depreciation, allowing companies to strategically plan how they expense large purchases for maximum benefit. The ability to layer these provisions makes asset acquisition and year-end purchasing decisions an even more powerful part of tax planning.
Business Interest Deduction – EBITDA Basis Restored
The OBBBA changes the limitation on business interest deductions under IRC §163(j) to be based on 30% of EBITDA rather than EBIT. This adjustment allows companies to add back depreciation, amortization, and depletion when determining their interest deduction limit.
The shift benefits capital-intensive industries like construction that rely on financing for equipment, real estate, or large-scale projects. However, the bill also removes the option to electively capitalize interest after 2025.
Qualified Business Income (QBI) Deduction – Permanent
The Qualified Business Income (QBI) deduction, first introduced under the Tax Cuts and Jobs Act (TCJA), has been made permanent by the OBBBA. This deduction allows eligible owners of pass-through entities—such as S corporations, partnerships, and sole proprietorships—to deduct up to 20% of their qualified business income on their personal tax return.
For the construction industry, this provision provides long-term certainty, since most construction companies are structured as pass-through entities rather than C corporations. The deduction is not unlimited, however, and it remains subject to a series of income thresholds, wage and property requirements, and special rules for certain types of service businesses.
Under prior law, the QBI deduction was scheduled to expire after 2025, and income thresholds were set at $50,000 for single filers and $100,000 for joint filers. The OBBBA permanently extends the deduction and raises the thresholds to $75,000 for single filers and $150,000 for joint filers, with amounts indexed annually for inflation.
Here’s how the thresholds work in practice:
- Below the threshold: taxpayers generally qualify for the full 20% deduction without additional restrictions.
- Within the threshold range: the deduction begins to phase out, and limitations based on W-2 wages and the original cost of qualified property (UBIA) apply.
- Above the threshold: the deduction is fully subject to these limitations, and in some cases, it may be reduced or eliminated.
For businesses above the upper threshold, the deduction may be capped at the lesser of:
- 50% of W-2 wages paid by the business, or
- 25% of W-2 wages plus 2.5% of the original cost of qualified property still in use.
Specified service trades or businesses—such as law, accounting, and financial services—face additional restrictions under the QBI rules, but construction is not considered a specified service trade or business. This means construction companies can generally take advantage of the deduction without these extra limitations.
It’s important to note that the deduction is available only to non-corporate taxpayers, appears on the individual tax return (Form 1040), and is calculated as the lesser of 20% of QBI or 20% of taxable income. In addition, state conformity to §199A varies, so businesses should review whether their state follows the federal rules.
Research and Development (R&D) Expensing Restored
The OBBBA allows immediate expensing of domestic R&D expenditures for tax years beginning after December 31, 2024, reversing the amortization requirement introduced by the TCJA. Smaller businesses with average gross receipts of $31 million or less may apply the rule retroactively to tax years beginning after 2021.
Construction companies investing in process improvements, engineering design, or technology development may qualify for these deductions.
Read our full breakdown of R&D tax credits under the new bill here.
Temporary Overtime Deduction (2025–2028)
The legislation creates an above-the-line deduction for the overtime portion of qualified wages for tax years 2025 through 2028. The deduction is capped at $12,500 for single filers and $25,000 for joint filers, with income phase-outs.
Only the premium portion of overtime pay qualifies, and it must be separately reported on Form W-2 or 1099.
Read our in-depth article on the temporary overtime deduction, eligibility requirements, and reporting rules here.
Notable Individual Provisions Impacting Owners
SALT Deduction Cap Increase & PTET Deductibility
For tax years 2025 through 2029, the OBBBA raises the individual state and local tax (SALT) deduction cap from $10,000 to $40,000, indexed annually for inflation. The expanded cap phases down for taxpayers with modified adjusted gross income above $500,000 in 2025 (indexed thereafter), but no taxpayer will receive less than the $10,000 baseline deduction.
The legislation also preserves the federal deductibility of Pass-Through Entity Taxes (PTET) paid under elective state-level regimes, allowing certain owners of pass-through construction companies to bypass the individual SALT cap entirely at the entity level.
Estate & Gift Tax Exemption – Permanent
The federal estate and gift tax exemption increases to $15 million per individual ($30 million for married couples), indexed annually for inflation beginning in 2026. This higher exemption is made permanent, removing the uncertainty of a post-2025 reversion to pre-TCJA levels.
For owners of closely held construction companies, this may create additional opportunities to transfer ownership interests or real estate holdings without triggering federal estate tax, subject to proper valuation and compliance.
Conclusion and Next Steps
The One Big Beautiful Bill Act delivers the most sweeping set of tax law changes in recent years, reshaping how construction companies approach capital investment, project accounting, financing, and ownership planning. While some provisions—such as the QPP deduction, expanded PCM exception, and permanent 100% bonus depreciation—offer long-term opportunities, others, like the energy-efficiency incentives, carry near-term deadlines that require immediate attention.
Because many of these changes include eligibility criteria, timing restrictions, and state conformity considerations, evaluating their potential impact will depend on your company’s specific project pipeline, financing structure, and ownership arrangements.
Action Items for Construction Companies
- Review Capital Project Timelines – Identify equipment purchases, facility upgrades, or new builds that could benefit from bonus depreciation, Section 179 expensing, or the QPP deduction.
- Assess Revenue Recognition Methods – Evaluate whether the expanded completed-contract method could improve cash flow management on multi-unit residential projects.
- Track Incentive Deadlines – Monitor start dates for projects that could qualify for expiring energy-efficiency deductions and credits.
- Analyze Financing Structure – Recalculate interest deductibility under the EBITDA-based rule and assess the impact of losing elective interest capitalization after 2025.
- Plan for Ownership and Estate Transfers – Consider the implications of the permanent estate and gift tax exemption for business succession strategies.
Ryan & Wetmore’s construction industry specialists are available to help you evaluate which OBBBA provisions apply to your operations and to model their potential tax and cash flow effects. Whether you are planning new capital investments, restructuring debt, or preparing for ownership transitions, our team can provide tailored guidance to help you make informed decisions.
FAQ – OBBBA Construction Tax Changes
Q1: When do energy-efficient tax incentives expire?
A: The Section 179D deduction and Section 45L credit for energy-efficient buildings end for projects starting after June 30, 2026. Construction firms should align project start dates to qualify.
Q2: What is the Qualified Production Property deduction?
A: QPP allows 100% expensing for qualifying nonresidential production facilities built after Jan. 19, 2025 and placed in service before Jan. 1, 2031. Applies to manufacturing, production, or refining uses.
Q3: How did the Opportunity Zone program change for construction projects?
A: The OZ program is now permanent, with rolling 10-year designations starting July 1, 2026. Rural zones get enhanced tax benefits, expanding potential development sites.
Q4: What is the expanded PCM exception under the new tax bill?
A: Residential projects with more than four units can now use the completed-contract method, deferring income recognition until substantial completion.
Q5: What’s the difference between bonus depreciation and Section 179 for construction equipment?
A: Bonus depreciation offers unlimited 100% expensing for qualifying assets placed in service after Jan. 19, 2025. Section 179 has a $2.5M cap and phase-out starting at $4M.
Q6: How does the EBITDA-based business interest deduction help construction firms?
A: The limit is now 30% of EBITDA, allowing more interest to be deducted on financed equipment, property, or large projects.
Q7: Is the Qualified Business Income deduction still available for contractors?
A: Yes. The 20% QBI deduction for pass-through entities is permanent, with higher income thresholds for eligibility.
Q8: How does R&D expensing benefit construction companies?
A: Domestic R&D costs can be fully deducted immediately. Eligible activities include process improvements, engineering design, and new building technology.
Q9: What is the temporary overtime deduction?
A: From 2025–2028, workers can deduct the overtime premium portion of wages, up to $12,500 single/$25,000 joint, with income limits.
Q10: What personal tax changes affect construction company owners?
A: Higher SALT cap, permanent $15M estate exemption, expanded 529 plans, new “Trump Accounts,” and permanent TCJA tax brackets.
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About Jason Dudas
Partner & CPA
Jason is a Partner in our Vienna, VA office. Since joining the firm in 2009, he has worked closely with clients on tax, audit and accounting issues. Jason has become an expert in construction accounting and is a member of the Real Estate and Construction CPA’s. He also has experience with research and development credits, and tangible property regulations.
