6 OBBBA Provisions Reshaping Construction Tax Strategies

On July 4, the One Big Beautiful Bill Act (OBBBA) was signed into law. The OBBBA is a broad reconciliation bill comprised of various measures impacting revenue, spending, taxes and the debt limit. Initially a vehicle for extending expiring provisions in the Tax Cuts and Jobs Act (TCJA) of 2017 and incorporating other key policy priorities, the OBBBA made its way through various congressional committees before taking shape as the law now in effect.

With its implications for 179D energy credits, depreciation, qualified business income (QBI), changes to alternative minimum tax (AMT) methods and much more, it’s difficult to overstate the significance of OBBBA on your tax strategy. In the following article, we will review six OBBBA provisions that are likely to have the most significant impact on construction firms. Every construction business should be revising its tax strategy in the wake of the OBBBA’s significant changes, and the following six provisions are an excellent starting point. We expect they will be the most broadly impactful and enable the greatest tax savings.

It should be noted that, as with any complex tax bill, the details of relevant OBBBA tax provisions and their impact on your business should be addressed in direct consultation with tax professionals who know your business and the construction industry. Construction industry tax professionals will help you develop an approach that serves your business’s unique interests, maximizes the value of your planning efforts and instills the best practices that your future savings will depend on.

1. 100% Bonus Depreciation Permanently Extended

Construction companies can now fully expense qualifying equipment and property in the year of purchase. This provision applies to qualified property acquired after Jan. 19, 2025, and has also been made permanent, eliminating the previous phase-out schedule.

This change enhances long-term planning certainty, improves cash flow and encourages capital investment in machinery, vehicles and other short-lived assets. Because this provision is now permanent, it also provides construction firms with the certainty needed to strategically manage capital expenditures over the long term.

2. R&E Expense Deduction Restored (2025-29)

Taxpayers can now immediately deduct domestic research and experimental (R&E) expenditures paid or incurred after Dec. 31, 2024. While the OBBBA restores full expensing for domestic R&E, the new provision does add certain complexities.

Key details:

• Domestic R&E expenses are fully deductible in the year incurred.
• Foreign R&E expenses must still be capitalized and amortized over 15 years.
• Small businesses with average gross receipts of $31 million or less will generally be permitted to apply this change retroactively to tax years beginning after Dec. 31, 2021, by filing an amended return.
• All other taxpayers that incurred R&E expenditures between Dec. 31, 2021, and Jan. 1, 2025, will be permitted to elect to accelerate the remaining deductions for those expenditures over a one- or two-year period, beginning after Dec. 31, 2024, via a change in accounting method.
• Procedural guidance is expected to be released by the IRS relating prior year capitalized expenditures.

This change reverses the amortization rules introduced under the TCJA and supports innovation in construction processes and technologies. It also provides a strong incentive for firms to invest in productivity-enhancing tools and sustainable practices, with immediate tax benefits — especially for small and midsize firms. Taxpayers affected by this provision should evaluate their remaining estimated tax payments for 2025 to preserve cash flow and plan accordingly.

3. Exception to Percentage-of-Completion Method for 
Certain Residential Contracts

Under prior law, home construction contracts involving buildings with four or fewer dwelling units were eligible to use more favorable accounting methods, such as the completed-contract method, instead of the percentage-of-completion method (PCM). This allowed builders to defer revenue recognition until the homes were completed.

The OBBBA expands this exception to include residential construction contracts involving more than four dwelling units, such as condominium complexes and multi-unit residential buildings.

This change enables a broader range of residential construction projects to utilize more favorable accounting methods, such as the completed-contract method, allowing for greater deferral of income until the project is substantially complete. It also offers significant tax planning flexibility and cash flow advantages for developers, builders and contractors working on larger-scale residential developments.

4. More Interest Expense Now Deductible for 
Capital-Intensive Businesses

The new law makes a permanent and favorable change to the limitation on business interest expense deductions. Previously, the deduction was limited to 30% of a business’s adjusted taxable income (ATI), which included the deduction for depreciation, amortization and depletion. Under the new rule, the limitation is now based on 30% of ATI after an add-back for depreciation, amortization and depletion when calculating their deduction threshold.

This change enables businesses to deduct a larger portion of their interest expense, especially those that are capital-intensive and highly leveraged, such as construction firms with significant equipment or real estate investments. By permanently shifting to an EBITDA (earnings before interest, taxes, depreciation and amortization)-based threshold, the law provides greater flexibility and tax relief for firms that rely on financing to grow and operate.

5. Special Depreciation for Nonresidential Real Property 
Used in US Production

The OBBBA provides for a new special depreciation allowance for qualified production property, allowing full and immediate expensing for certain nonresidential real estate used in manufacturing or production.

To be eligible, the property must meet all the following criteria:

• It must be nonresidential real property (e.g., factories, refineries or production facilities).
• It must be used as an integral part of qualified production activity, such as manufacturing, production or refining 
  of a qualified product.
• Construction must begin between Jan. 19, 2025, and Dec. 31, 2028.
• The property must be placed in service before Jan. 1, 2031.

This provision provides a powerful incentive for construction firms involved in building or upgrading U.S.-based production facilities. It supports long-term investment in domestic industrial infrastructure and offers immediate tax benefits for qualifying projects.

6. Permanent Increase in Estate & Gift Tax Exemptions

Beginning in 2026, the OBBBA raises the lifetime estate and gift tax exemption amounts to $15 million for single filers and $30 million for married couples. These amounts will be indexed for inflation starting in 2026.

Many construction firms are privately owned, with the majority of owner wealth tied up in closely held stock. These shares often lack liquidity, making it difficult for heirs to cover estate tax liabilities without selling off business assets. The increased exemption thresholds provide relief, allowing owners to transfer more wealth without triggering estate tax, thereby supporting business continuity and succession planning.

Tax season is just around the corner. That makes this the ideal time to take a fresh look at your tax strategy with the One Big Beautiful Bill Act in mind. When major tax opportunities like the OBBBA present themselves, taxpayers should be proactive.

While the six provisions of the OBBBA discussed above stand to impact the strategies of virtually every business in the construction industry, this sweeping reconciliation bill includes many other provisions with potential tax impact — including the temporary increase in the state and local tax deduction limit, acceleration of the expiration of several energy tax credits and expansion of the exemption available under Section 179, among many others.

Construction firms should adapt their tax strategies in consultation with a tax professional who knows their business and the construction industry to fully maximize OBBBA tax opportunities. Those who don’t dedicate the time and attention to maximizing the value of these monumental changes risk leaving significant advantages untapped.