Construction Tax Planning Under the One Big Beautiful Bill

The legislation introduces targeted opportunities to strengthen cash flow, accelerate growth and reinforce long-term financial strategy, especially with early and informed planning.

While it does not resolve current industry headwinds, OBBBA introduces tools that can improve financial resilience. Many provisions extend or make permanent key incentives, including depreciation, deductions and rate structures.

Bonus Depreciation and Section 179
OBBBA permanently reinstates 100% bonus depreciation for qualifying property placed in service on or after Jan. 19, 2025, and expands Section 179 expensing to $2.5 million, with a phase-out beginning at $4 million. These deductions offer powerful incentives to preserve liquidity and reinvest in operations. Capitol-intensive businesses should: align capital investment schedules with property placement timelines, account for tariff-driven cost increases and analyze state-level conformity rules to avoid missed benefits. 

Construction Income RecognitionOBBBA now allows residential construction contracts to utilize an exempt method, deferring income recognition until substantially complete. Eligibility highlights: residential construction contracts automatically qualify,and other contracts may qualify if the contractor’s average annual gross receipts are under $31 million and the contract is expected to be completed within three years. 

Research and Development (R&D) Credits Some construction activities may qualify as R&D. For tax years beginning after Dec. 31, 2024, domestic research and development costs may be immediately deductible. Companies with average gross receipts of under $31 million may amend prior year returns for 2022 through 2024. Larger businesses may not amend prior year returns but may elect to accelerate unamortized costs in 2025 or split them over 2025–2026. Qualifying activities may include: design innovation, engineering refinement and material testing; prefabrication modeling or alternative waterproofing techniques; and process improvements with variable outcomes or technical uncertainty.

Interest Expense Deduction
OBBBA reinstates the EBITDA-based limitation under IRC §163(j), restoring the ability to include depreciation, depletion and amortization when calculating adjusted taxable income. 

Qualified Production Property (QPP) 
A 100% deduction is now available for Qualified Production Property (QPP), which is a nonresidential building used primarily for domestic manufacturing or fabrication. 

SALT Cap and PTET Relief 
OBBBA increases the federal SALT deduction cap to $40,000 for individuals who itemize and maintains the federal deductibility of taxes paid under elective Pass-Through Entity Tax (PTET) regimes.

For contractors structured as partnerships or S corporations in high-tax states, this ensures continued access to valuable deductions. Strategic actions include reviewing current PTET election status, reassessing quarterly estimates considering updated caps and coordinating across entities and jurisdictions to maximize benefits. 

Estate and Gift Tax Planning 
OBBBA makes the $15 million individual ($30 million joint) estate and gift tax exemption permanent, with indexing beginning in 2026. While this provides federal certainty, state-level differences persist.

Recommended planning moves: