OBBBA Tax Law: 8 Key Changes for Construction Companies in 2025 and Beyond
Contributors
As 2025 comes to a close, the construction industry faces a shifting tax landscape. The recently enacted One Big Beautiful Bill Act (OBBBA) brings sweeping changes, many of which directly impact contractors, developers and construction business owners.
Here’s what you need to know and how you can position your business for success.
OBBBA: A Quick Overview
The OBBBA builds on the framework of the 2017 Tax Cuts & Jobs Act (TCJA), making many of its business and individual provisions permanent and introducing new enhancements. For construction companies, several provisions stand out for their potential to improve cash flow and reduce tax liability.
Key Tax Changes Impacting Construction
1. Restoration of 100% Bonus Depreciation
What’s new: Bonus depreciation is back at 100%, and it’s permanent. This means you can fully expense qualifying property acquired after January 19, 2025.
Why it matters: Immediate expensing of qualifying equipment and property investments can significantly reduce taxable income and free up cash for growth, making it easier to invest in your business.
2. Increased Section 179 Expensing Limits
Section 179 limit: Raised to $2.5 million (with annual inflation adjustments).
Phase-out threshold: Increased to $4 million.
Why it matters: Immediate expensing of qualifying equipment and property investments can significantly reduce taxable income and free up cash for growth, making it easier to invest in your business.
3. 100% Depreciation for Qualified Real Production Property
Who qualifies: Non-residential real property used in manufacturing, production (including construction) or refining.
Timing: Construction must start between January 20, 2025, and December 31, 2029, and be placed in service before January 1, 2031.
Benefit: Accelerated deductions for new construction projects.
4. Qualified Business Income (QBI) Deduction Made Permanent
20% deduction: Non-corporate taxpayers can continue to deduct 20% of qualified business income from pass-through entities or sole proprietorships.
No sunset: This deduction is now permanent, offering ongoing tax relief for many construction businesses.
5. Immediate Expensing of Domestic R&D Costs
What changed: R&D expenses can now be deducted in full in the year incurred (effective for tax years after 2024).
For small businesses: Options to amend prior returns or spread deductions over 2025 and 2026.
Why it matters: Encourages innovation and investment in new construction methods and technologies.
6. Interest Expense Limitation: Back to EBITDA
Calculation change: The interest expense limitation now uses EBITDA (earnings before interest, taxes, depreciation, and amortization), not just EBIT as was the measurement used for tax years 2022 - 2024.
Impact: Enhances deductibility of interest expense, especially valuable for capital-intensive construction companies financing large projects.
7. Expansion of Completed Contract Method (CCM)
Broader eligibility: More residential construction projects (including apartments, student housing, mixed-use developments and more) can use CCM instead of the percent-of-completion method.
Benefit: Defers revenue recognition until project completion, helping preserve cash flow.
8. Pass-Through Entity Tax Elections
Here to stay: Pass-through entity tax elections remain available, allowing S corporations and partnerships to pay state income tax at the entity level.
Strategy: Can help owners work around the SALT cap and maximize federal tax savings.
Year-End Planning Strategies for Construction Companies
With these changes in mind, here are some practical steps to consider as you plan for year-end and beyond:
Review capital equipment needs: Take advantage of expanded bonus and Section 179 depreciation to reduce taxable income.
Evaluate pass-through entity tax elections: Determine if this strategy makes sense for your ownership structure.
Revisit accounting methods: If you have residential construction projects, analyze whether switching to the completed contract method could benefit your business.
Explore available credits: Don’t overlook federal and State-specific incentives, such as the Work Opportunity Tax Credit, Section 179D deduction and various state credits for retraining, rural hospitals and education.
Final Thoughts
The OBBBA brings significant opportunities and some complexities for the construction industry. By staying informed and working with experienced advisors, you can make the most of these changes and keep your business on a solid financial footing.
If you have questions or want to discuss how these updates impact your company, the Moore Colson Construction team is here to help.
