As of early June, Congress has worked through several iterations of The One Big Beautiful Bill.
Here are a few common provisions across each iteration and how they could potentially help construction companies while requiring those companies to change very little – if anything – about their current operations.
Bonus Depreciation
Going back to his campaign trail, President Trump has supported restoring 100% bonus depreciation for eligible assets placed in service in 2025. Under current law, certain assets are eligible for an immediate 40% deduction in 2025 (phased down to 20% in 2026 and zero bonus in 2027 and thereafter) with the remaining cost being subject to the traditional MACRS depreciation deductions over the life of the asset. A construction company with $1,000,000 of eligible five-year assets placed in service in 2025 under the current rules would be able to deduct $520,000 ($1,000,000*40% bonus + $1,000,000*60% basis after bonus *20% first year MACRS deduction percentage) and could see an additional $480,000 of tax depreciation deductions in 2025 under the proposed 100% bonus provision.
Qualified Research and Experimental Expenses (QREs)
Under current tax law, domestic QREs are 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. These are costs associated with traditional R&D, both internally and externally, as well as with process or design improvements in other areas. The current iteration of The One Big Beautiful Bill would allow taxpayers to postpone the current capitalization requirement until tax years ending after December 31, 2029 for domestic R&D expenditures. This would result in the ability to deduct 100% of 2025 domestic QREs currently required to be capitalized. A taxpayer could also choose to elect to continue to capitalize and amortize these costs should they desire.
A transition rule would require taxpayers to adopt the changes to domestic research or experimental expenditures as an automatic accounting method change on a cutoff basis for taxable years beginning after December 31, 2024.
Qualified Business Income (Section 199A) Deduction
The Tax Cuts and Jobs Act (TCJA) established a temporary 20% deduction of ordinary business income from qualified pass-through entities, which included the construction industry, to reduce the top individual effective tax rate from 37% to 29.6%. This temporary deduction is set to expire at the end of the 2025 calendar year. The One Big Beautiful Bill would modify the expiring the expiring 20% deduction with a permanent 23% deduction that would bring the top individual effective tax rate down to 28.49%, saving a pass-through construction company owner roughly $11,000 in federal income taxes on $1,000,000 of taxable income. This modification does not go into effect until 2026.
Business Interest Deduction Limitation (Section 163j)
The Tax Cuts and Jobs Act also established a permanent calculation that limits the amount of business interest expense that can be deducted by certain larger construction companies. The original calculation limited deductible interest expense to 30% of a business’s Adjusted Taxable Income (ATI), which was similar tax EBITDA. Also included in the initial limitation was an expiration on the ability to add back tax depreciation and amortization to calculate ATI. The current iteration of The One Big Beautiful Bill would temporarily re-allow taxpayers to add back tax depreciation and amortization to its ATI calculation. Without this favorable change to the ATI formula, the increased deductions received from 100% bonus depreciation are moderately offset with a 30% reduction in deductible interest expense.
The final iteration of The One Big Beautiful Bill remains open for discussion and adjustment, but it is looking increasingly likely that in 2025, tax relief is on the way for U.S. construction companies.
Please note: This article was written before the final version of the bill became law, so some information may no longer be current.
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