How will the One Big Beautiful Bill (OBBB) impact the construction industry?
The OBBB introduced significant income tax-related changes affecting the construction industry. Five of the most significant income tax implications of this landmark bill are highlighted below:
Qualified Business Income Deduction
The OBBB makes permanent the 20% deduction of ordinary business income from qualified pass-through entities. This deduction essentially reduces the top individual effective rate from 37% to 29.6% and was set to expire at the end of the 2025 calendar year.
Expensing of Qualified Research and Experimental Expenses (QREs)
Beginning in 2022, domestic QREs were required to be capitalized and amortized over six tax periods, with the first and last year deduction equaling only 10% of the total amount of expense incurred during the year.
For tax years beginning after December 31, 2024, domestic R&D costs are fully deductible in the year incurred, and taxpayers can deduct the unamortized QREs (that were capitalized in 2022-2024) in 2025 or split the deduction between 2025 and 2026.
Small taxpayers (companies with average gross receipts of $31 million or less over the past three years) also have the ability to amend their tax returns for 2022 through 2024 to claim these deductions.
Depreciation Changes
One hundred percent bonus depreciation (previously 40% in 2025) was made permanent for qualifying property acquired after January 19, 2025. In general, qualifying property is MACRS property with a recovery period of 20 years or less, computer software or Qualified Improvement Property.
In addition, the dollar limitation for Code Section 179 depreciation expense is increased to $2.5 million and the investment limitation is increased to $4 million for tax years beginning after 2024. These amounts will be adjusted for inflation for years beginning after 2025.
Clean Energy Incentives Terminated
The bill eliminates many green construction tax incentives, including 179D and 45L. The 179D tax deduction is not available for properties that begin construction after June 30, 2026, and the 45L tax credit is not available for all dwelling units that are closed or initially leased after June 30, 2026.
SALT Work-Arounds Retained
The OBBB retains the full deductibility of state income taxes paid by pass-through entities on behalf of their owners. This workaround remains an important tax planning strategy given that the SALT deduction (for individual income taxpayers) was only increased to $40,000 (from $10,000) and phases out for married individual income taxpayers with adjusted grossed income in excess of $500,000.
This article is part of our ongoing series on the potential impact of the One Big Beautiful Bill. You may view our full library on our OBBB Resource Center.
For more information on the impact of the OBBB on your company, please contact us at [email protected].
About Schneider Downs Construction Services
Led by a diverse group of shareholders and managers, Schneider Downs provides strategic and practical solutions for our construction clients in all facets of their business. Our dedicated team of more than 350 professionals have a wide background of tax, accounting, technological and business experience in the region, specifically in Pittsburgh and Columbus.
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