While the One Big Beautiful Bill Act (OBBBA) may appear broadly applicable across industries, its impact on construction is both direct and substantial. The legislation introduces targeted opportunities to strengthen cash flow, accelerate growth, and reinforce long-term financial strategy — if approached with deliberate planning and timely execution.
In an industry where timing is everything and market conditions shift rapidly, effective planning under OBBBA demands focused, strategic decision-making. Now is the time for construction businesses to evaluate new levers for investment, income recognition, and financing to determine which provisions apply and how to act on them.
Carl Oliveri, Grassi’s Construction Practice Leader, recently outlined these opportunities in a strategic planning webinar, “Breaking Down the One Big Beautiful Bill: What It Means for Contractors,” highlighting how businesses can leverage these provisions for maximum impact.
Why OBBBA Matters for the Construction Industry
The OBBBA arrives during a period of sustained operating pressure. Construction businesses are managing elevated costs, labor shortages, and tighter credit access while navigating ongoing tariff volatility.
While OBBBA may not resolve these external challenges, it could provide a timely suite of tools to strengthen tax strategy and improve business resilience. Many provisions extend or make permanent key incentives, including depreciation, deductions, and rate structures. Industry economists anticipate increased activity across infrastructure, manufacturing, and development, placing contractors at the center of expansion.
Bonus Depreciation and Section 179: Capital Investment Incentives for Contractors
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 specific nonresidential real property improvements. Section 179 expensing has also been increased to $2.5 million annually, with a phase-out beginning at $4 million.
If leveraged effectively, these deductions offer powerful incentives to preserve liquidity and reinvest in operations.
Capital-intensive businesses should:
- Align capital investment schedules with property placement timelines.
- Account for tariff-driven cost increases, which may boost the depreciation base.
- Analyze state-level conformity rules to avoid missed benefits where federal provisions are decoupled.
Front-loading deductions through bonus depreciation and Section 179 can reduce taxable income and improve working capital; however, timing and state-specific planning are crucial.
Construction Income Recognition: Expanded Reporting Flexibility for Residential Contractors
Previously, only home construction contracts, single-family homes or buildings with four or fewer units could defer recognizing income utilizing an exempt reporting method, like cash or completed contract basis. Larger residential projects with more than four units, such as apartment buildings or condominiums, had to report income as the work progressed, under the percentage of completion/capitalized cost method (“PCCM”).
OBBBA will now allow residential construction contracts to move away from PCCM to utilize an exempt method, which could be a substantial tax benefit, as these projects can defer the recognition of income until the project is (substantially) complete. Further, the change could also pertain to certain types of subcontractors.
When analyzing this change, here are the strategies to consider:
- Residential construction contracts, as newly defined, will automatically qualify for the exception.
- Other construction contracts, not just residential, could qualify if the contractor’s average annual gross receipts are under $31 million and the contract is expected to be completed within three years (the duration test).
- Applying the 10% method to defer recognition on incomplete contracts below the 10% threshold.
For firms with diverse revenue streams, hybrid reporting methods can enhance deferral opportunities and improve forecasting accuracy. Early scenario modeling helps determine eligibility, ensure accurate elections, and confirm IRS approval where required.
Research and Development (R&D) Credits: Claiming Innovation
While construction may not typically evoke images of white lab coats, some construction activities may qualify for these credits. R&D activities must be innovative and have multiple outcomes; success is not a requirement.
For tax years beginning after December 31, 2024, domestic research and development costs may be immediately deductible. Companies with average gross receipts of less than $31 million can amend returns filed in previous years to claim this as well (cannot go beyond 2021).
Eligible construction activities may include:
- Design innovation, engineering refinement, and material testing.
- Prefabrication modeling or alternative waterproofing techniques.
- Process improvements with variable outcomes or technical uncertainty.
Businesses should:
- Revisit previously capitalized costs and explore deduction recovery.
- Audit historical projects for qualifying innovation.
- Model wage-based credits and evaluate 2025 eligibility now.
There is no disadvantage to examining the options, and some of the most valuable credits may already be embedded in past projects.
Interest Expense Deduction: Strategic Leverage Under IRC §163(j)
OBBBA reinstates the EBITDA-based limitation under IRC §163(j), restoring the ability to include depreciation, depletion and amortization when calculating adjusted taxable income. This benefits those who use financing to support operations or equipment investments.
Recommended next steps:
- Update debt models to reflect the revised thresholds.
- Consider entity restructuring to optimize interest allocation.
- Coordinate depreciation and financing strategy to maximize both deductions.
Interest expense planning should no longer be left to year-end, and it now plays a central role in managing after-tax cash position.
Qualified Production Property (QPP): Incentivizing Facility Construction and Self-Fabrication
A 100% deduction is now available for Qualified Production Property (QPP), which is a non-residential building used primarily for domestic manufacturing or fabrication. This applies to projects that meet all the eligibility requirements:
- Begin construction after January 19, 2025.
- Place property in service before January 1, 2031.
- Ensure use aligns with production, not administrative, office, or storage space.
While targeted at manufacturers, this provision has clear implications for construction:
- Businesses building QPP facilities may see increased demand for construction services.
- Contractors who self-fabricate materials may qualify directly if operating from eligible facilities.
Reviewing capital plans and facility usage early can uncover high-value opportunities, but the complexity requires coordinated planning.
SALT Cap and PTET Relief: Preserving Deductions
OBBBA increases the federal SALT deduction cap to $40,000 for individuals who itemize their deductions and preserves 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.
- Coordinating across entities and jurisdictions for full advantage.
These provisions may help protect margin, liquidity, and planning flexibility where contractors need it most.
Estate and Gift Tax Planning: Clarity for Owners
OBBBA makes the $15 million individual ($30 million joint) estate and gift tax exemption permanent, indexed beginning in 2026. While this creates federal certainty, contractors must still navigate varied state-level rules.
New York, for instance, enforces a “cliff” structure, and exceeding exemption thresholds can trigger tax on the entire estate.
Recommended planning moves:
- Reevaluate estate plans and ownership structure.
- Align gifting strategies with current valuations.
- Coordinate with counsel to address state-level nuances.
Exemptions may be fixed, but market conditions and state law require regular review.
Turning Policy into Strategy
OBBBA offers contractors a unique chance to reevaluate how they report, invest, and plan. Its provisions support liquidity, tax optimization, and long-term positioning, but they are only useful when acted upon deliberately.
Don’t wait until year-end; tax planning should be a quarterly activity. These changes can impact cash flow, project pricing, and long-term wealth preservation; however, they must be tailored to your specific business and implemented at the proper time.
Tailored Guidance for Contractors Under the OBBBA
Grassi’s Construction advisors are available to support contractors, developers, and builders as they interpret the law and take decisive next steps. Whether evaluating a method change, modeling capital deductions, or preparing for ownership transition, this is the time to convert policy into strategy, and strategy into action.
To explore how OBBA may impact your business, please contact a Grassi advisor or reach out directly to Carl Oliveri, our Construction Practice Leader.
