Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) introduces the most significant tax reforms since the 2017 Tax Cuts and Jobs Act. The legislation arrives at a critical time for the construction industry, as firms continue to navigate rising costs amidst tariff uncertainty, labor shortages, and capital constraints due to high interest rates; and its provisions are poised to influence how construction firms plan, invest, and operate for years to come.
Below, we outline the most relevant provisions of the OBBBA for contractors, developers, and builders, highlighting key opportunities for reassessment and planning in the changed tax environment.
Permanent 100% Bonus Depreciation
The OBBBA permanently reinstates 100% bonus depreciation under IRC §168(k) for qualifying property placed in service on or after January 19, 2025. This includes construction equipment, vehicles, and certain improvements to nonresidential real property. The provision applies to both new and used property, eliminating the phase-down schedule that was in effect under prior law.
What This Means: For tax purposes, contractors can now fully expense the cost of equipment, vehicles, and qualifying property in the year placed in service, providing greater certainty in long-term planning and freeing up cash flow for working capital purposes. This may be especially valuable for contractors upgrading or expanding their fleets. It should be noted that equipment which is not manufactured or purchased domestically could face tariffs, which would be part of the cost to write off.
Expanded Section 179 Expensing
Effective for tax years beginning after December 31, 2024, the OBBBA increases the maximum Section 179 deduction to $2.5 million, with a phase-out threshold of $4 million, with both amounts indexed for inflation. Similar to bonus depreciation, this provision allows businesses to immediately expense the full cost of qualifying equipment, software, and certain improvements to nonresidential real property, rather than depreciating them over time.
What This Means: The expanded limits provide construction firms with more flexibility to manage their taxable income. Pairing Section 179 with bonus depreciation may offer a more strategic approach to maximizing large capital investments and managing state taxable income.
Qualified Production Property (QPP) Incentive
The OBBBA introduces a new 100% deduction for Qualified Production Property (QPP): a category of newly constructed nonresidential real property primarily used for manufacturing, production, or refining tangible personal property.
To qualify:
- Construction must begin after January 19, 2025
- The property must be placed in service before January 1, 2031
- The deduction applies to new buildings and improvements, but excludes property used for office, administrative, lodging, parking, sales, research, software development, or engineering functions.
What This Means: This provision provides a powerful incentive for companies to invest in new production facilities. For the construction industry, any contractors who are fabricating their own materials, such as sheet metal, steel, or others, to be used on a job site may have a significant tax planning opportunity to reinvest in their business by upgrading their production facilities while utilizing the full tax benefit under the QPP.
PTET Deductibility Preserved
The OBBBA preserves the federal deductibility of state and local taxes paid at the entity level under elective Pass-Through Entity Tax (PTET) regimes. While PTET programs were designed to bypass the $10,000 SALT cap that applies at the individual level under the TCJA, OBBBA increases the SALT cap to $40,000. For owners of construction companies who experience SALT above the expanded limit, the PTET provisions will continue to provide relief for pass-through businesses in high-tax jurisdictions, such as New York and New Jersey.
What This Means: For construction companies structured as partnerships or S corporations, this provision helps preserve a valuable federal deduction for state taxes, which allows businesses retain more corporate capital to deploy into projects in lieu of utilizing lines of credit at higher interest rates.
Expanded Interest Deduction
The OBBBA reinstates the EBITDA-based limitation under IRC §163(j) for tax years beginning after December 31, 2024. This change reverses the EBIT-based limitation that has been in effect since 2022, allowing businesses to recapture depreciation, amortization, and depletion when calculating adjusted taxable income (ATI) for the 30% cap on business interest deductions.
What This Means: Contractors utilizing their lines of credit to float requisitions, financing equipment, or for any other operating need may now deduct a greater amount of interest expense, thereby improving their after-tax cash position. Firms with significant leverage should model their 2025 interest positions to evaluate whether restructuring or shifting interest to related entities could enhance deductibility.
Research and Development (R&D) Expensing
The OBBBA repeals the TCJA’s requirement to amortize domestic R&D expenditures over five years. Businesses may now immediately deduct eligible U.S.-based R&D costs for tax years beginning after December 31, 2024. Businesses with average gross receipts of less than $31 million may elect to apply the new rules retroactively to tax years beginning after 2021. This retroactive relief may be claimed by amending prior returns or through a one-time “catch-up” deduction in 2025 or spread over 2025 and 2026. Foreign R&D expenditure remains subject to a 15-year amortization period.
What This Means: While the construction industry may not be known for R&D, contractors investing in design innovation, engineering processes, or construction technology may now fully deduct qualifying R&D costs in the year incurred. Smaller and mid-sized firms should assess whether they are eligible for retroactive deductions under the catch-up provision or amend prior years’ returns to recoup taxes paid.
Exception to Percentage-of-Completion Method for Residential Construction
The OBBBA expands the exception to the Percentage-of- Completion Method (PCM) to include residential construction contracts involving more than four dwelling units, such as multi-family buildings and condominium developments. Previously, this exception applied only to buildings with four or fewer units.
What This Means: This change allows a broader range of residential projects to use the completed-contract method, enabling contractors to defer income recognition until substantial completion. This may result in greater flexibility in tax planning and improved cash flow for developers and builders engaged in larger-scale residential construction.
Opportunity Zone Incentives
The OBBBA makes the Opportunity Zone (OZ) program permanent, replacing the original sunset date of December 31, 2026, with rolling ten-year designation cycles beginning on July 1, 2026. Governors may nominate new zones every ten years, with each designation lasting a decade. The law also introduces enhanced compliance and reporting requirements for Qualified Opportunity Funds (QOFs), including annual IRS disclosures and public reporting on community impact.
What This Means: The extended OZ framework may increase project volume in designated areas, particularly in affordable housing, infrastructure, and commercial development, while offering investors long-term tax incentives that drive demand for construction services. Contractors should monitor new OZ designations in their region and consider partnering with developers or funds targeting these areas to capture future project opportunities.
Estate and Gift Tax Exemption Made Permanent
The OBBBA permanently increases the federal lifetime estate, gift, and generation-skipping transfer (GST) tax exemption to $15 million per individual (or $30 million per married couple), indexed annually for inflation beginning in 2026. This replaces the prior exemption, which was scheduled to sunset and revert to approximately $7 million per person.
What This Means: This change provides long-term certainty for high-net-worth individuals and family-owned construction businesses engaged in succession planning. The expanded exemption offers a valuable opportunity to transfer ownership interests, real estate, or other appreciating assets with reduced estate tax exposure.
Strategic Considerations for Construction Firms
Businesses in the construction industry should assess how these provisions may impact their operations and tax strategies. To stay ahead, businesses should:
- Evaluate their accounting methods, including contract types and gross receipts thresholds, to identify opportunities for method changes or simplification.
- Update capital budgets in light of permanent 100% bonus depreciation and expanded Section 179 expensing.
- Assess eligibility for R&D expensing, especially for firms with under $31 million in average gross receipts that may benefit from retroactive deductions.
- Model interest expense limitations and consider restructuring debt or operations to preserve deductibility.
- Review entity structure and PTET participation to maximize pass-through tax benefits under the new rules.
- Revisit succession and ownership transition plans, taking into account the permanent estate and gift tax exemption.
Attend Our Upcoming Webinar for More Information
On Thursday, July 10, from 12:00 to 1:00 p.m. EDT, Grassi’s tax professionals will host a live webinar exploring the key provisions of the One Big Beautiful Bill and what they mean for your business or personal tax strategy. Hear directly from our advisors as they provide practical insights and planning considerations under the new law.
Tailored Guidance for the OBBBA
The One Big Beautiful Bill Act represents a significant shift in federal tax policy with far-reaching implications for the construction industry. As with any significant legislative change, thorough planning and scenario modeling are essential to capitalize on new opportunities and adjust your strategy accordingly.
Contact us or reach out with a Grassi advisor today to evaluate the impacts, uncover opportunities, and craft strategies tailored specifically to your business under the new legislation.
