The highly-touted “One Big Beautiful Bill Act” signed by President Trump on July 4, 2025, implements a number of tax changes that will impact the business of construction – some positively, some not so much. Some provide direct tax benefits to contractors, while others are designed to increase demand for construction.
The one everybody talks most about is reinstatement of the so-called 100% bonus deduction. The entire cost of construction equipment, qualifying vehicles, and interior improvements to commercial buildings that are placed in service after January 19, 2025, can be “expensed” – taken as a full deduction in the year of purchase. This flexibility will usually be a lot better for a contractor’s bottom line than depreciating the cost over five years.
The OBBBA also encourages the construction of new manufacturing facilities by introducing a Qualified Production Property provision applicable to construction begun after January 19, 2025, and before January 1, 2029. Under this provision, the costs of construction can be expensed in the year the facility is placed in service, rather than depreciating them over 39 years. This doesn’t directly benefit industrial contractors, but it will increase demand for their services. In Notice 2026-16 issued February 20, 2026, the IRS published interim guidance on how it will work.
For developers of multi-unit housing projects, the “Completed Contract Method” allows deferral of recognizing income and costs for tax purposes until the project is substantially complete, rather than reporting income each year under the percentage‑of‑completion method. This option was previously available only for one- to four- unit residential projects. The change is good news for apartment complexes, condos, student housing and senior living projects.
Qualified affordable housing buildings financed with tax-exempt bonds got a shot in the arm from OBBBA. The threshold for the low-income housing tax credit for bond-financed construction, previously 50% of the aggregate basis of the building and land financed by tax-exempt bonds, is now set 25% for bonds issued after Dec. 31, 2025.
The OBBBA has also expanded the usage of 529 education savings accounts to career and technical education in the construction trades, which should increase the pool of available skilled workers.
Interest deductions also became more generous under the OBBBA. Prior law allowed businesses to deduct interest expense up to 30% of earnings before interest and taxes (EBIT). Now, businesses can calculate that limit based on EBITDA, adding depreciation and amortization back in the mix such that more interest becomes deductible. This should encourage borrowing to finance growth across the board.
Contractors who struggle to get employees to work overtime should have a bit easier time convincing them, thanks to a provision in the OBBBA which exempts up to $12,500 in overtime income from federal income tax. (Note: Social Security and Medicare taxes still apply.)
On the minus side, the OBBBA repeals the Energy Efficient Commercial Building Deduction for projects that begin construction after June 30, 2026. This reduces incentives for energy-efficient construction and retrofits, and will likely produce a short term uptick in such projects as developers scramble to start construction before the deduction sunsets. In like fashion, tax breaks for energy efficient homes will sunset for residential properties acquired after June 30, 2026.
The Trump Administration’s disdain for clean and renewable energy has also made an appearance in the OBBBA. Tax credits related to wind and solar installations will begin to phase out for projects placed in service after 2027, unless construction began within one year of enactment of the OBBBA. (The Act also cancelled billions in funding for offshore wind, solar, and EV infrastructure projects. Court challenges to the cancellations are underway.)
In the long run, the biggest minus from the Act may end up being its impact on the federal deficit. The Congressional Budget Office recently projected that the OBBBA will end up increasing the federal deficit by $4.7 trillion. That has "recession" written all over it.
The one everybody talks most about is reinstatement of the so-called 100% bonus deduction. The entire cost of construction equipment, qualifying vehicles, and interior improvements to commercial buildings that are placed in service after January 19, 2025, can be “expensed” – taken as a full deduction in the year of purchase. This flexibility will usually be a lot better for a contractor’s bottom line than depreciating the cost over five years.
The OBBBA also encourages the construction of new manufacturing facilities by introducing a Qualified Production Property provision applicable to construction begun after January 19, 2025, and before January 1, 2029. Under this provision, the costs of construction can be expensed in the year the facility is placed in service, rather than depreciating them over 39 years. This doesn’t directly benefit industrial contractors, but it will increase demand for their services. In Notice 2026-16 issued February 20, 2026, the IRS published interim guidance on how it will work.
For developers of multi-unit housing projects, the “Completed Contract Method” allows deferral of recognizing income and costs for tax purposes until the project is substantially complete, rather than reporting income each year under the percentage‑of‑completion method. This option was previously available only for one- to four- unit residential projects. The change is good news for apartment complexes, condos, student housing and senior living projects.
Qualified affordable housing buildings financed with tax-exempt bonds got a shot in the arm from OBBBA. The threshold for the low-income housing tax credit for bond-financed construction, previously 50% of the aggregate basis of the building and land financed by tax-exempt bonds, is now set 25% for bonds issued after Dec. 31, 2025.
The OBBBA has also expanded the usage of 529 education savings accounts to career and technical education in the construction trades, which should increase the pool of available skilled workers.
Interest deductions also became more generous under the OBBBA. Prior law allowed businesses to deduct interest expense up to 30% of earnings before interest and taxes (EBIT). Now, businesses can calculate that limit based on EBITDA, adding depreciation and amortization back in the mix such that more interest becomes deductible. This should encourage borrowing to finance growth across the board.
Contractors who struggle to get employees to work overtime should have a bit easier time convincing them, thanks to a provision in the OBBBA which exempts up to $12,500 in overtime income from federal income tax. (Note: Social Security and Medicare taxes still apply.)
On the minus side, the OBBBA repeals the Energy Efficient Commercial Building Deduction for projects that begin construction after June 30, 2026. This reduces incentives for energy-efficient construction and retrofits, and will likely produce a short term uptick in such projects as developers scramble to start construction before the deduction sunsets. In like fashion, tax breaks for energy efficient homes will sunset for residential properties acquired after June 30, 2026.
The Trump Administration’s disdain for clean and renewable energy has also made an appearance in the OBBBA. Tax credits related to wind and solar installations will begin to phase out for projects placed in service after 2027, unless construction began within one year of enactment of the OBBBA. (The Act also cancelled billions in funding for offshore wind, solar, and EV infrastructure projects. Court challenges to the cancellations are underway.)
In the long run, the biggest minus from the Act may end up being its impact on the federal deficit. The Congressional Budget Office recently projected that the OBBBA will end up increasing the federal deficit by $4.7 trillion. That has "recession" written all over it.
RSS Feed