Whether you’re managing large-scale infrastructure projects or residential developments, the One Big Beautiful Bill (OBBB) will likely impact your business this year. Enacted July 4, the bill introduces a range of tax and policy adjustments that are expected to affect investment, project demand, and operational planning for construction firms of all sizes. Understanding these provisions is the first step in optimizing your firm’s tax strategy.
Key Tax Provisions and Operational Incentives
A central component of the OBBB for the construction industry is the reinstatement of 100% bonus depreciation for qualifying tangible property. This allows construction firms to immediately deduct the full cost of major assets, such as heavy machinery, vehicles, and tools placed in service after Jan. 19, 2025. This change can significantly improve cash flow for companies, encouraging them to modernize their fleets and invest in new equipment.
The bill also favorably addresses a key financial concern for many construction companies: interest expense deductibility. The OBBB reverts the Section 163(j) limitation to a more favorable calculation based on a company’s earnings before interest, taxes, depreciation, and amortization (EBITDA). This change, effective for tax years beginning after Dec. 31, 2024, generally increases a company’s ability to deduct business interest, making it easier to finance large, capital-intensive projects.
For many small and mid-sized construction firms operating as pass-through entities, the permanency of the Qualified Business Income (QBI) deduction at its current 20% rate offers long-term tax-planning certainty.
Demand Drivers from Other Sectors
The OBBB’s impact on the construction industry extends beyond direct tax relief; it also creates demand for new construction projects. The introduction of a special 100% depreciation for qualified production property (click here for easy-to-understand criteria) is a significant driver of new industrial construction. This provision allows manufacturers to immediately deduct the full cost of new factories, production facilities, or significant improvements to existing ones. This incentive is expected to spur the construction of new industrial buildings across the country.
Furthermore, the bill’s modifications to the Advanced Manufacturing Investment Credit (Section 48D) from the CHIPS Act will continue to drive a high demand for highly specialized construction services. The increase of the credit — from 25% to 35% for qualified property — will make the construction of new semiconductor fabrication plants and related facilities an even more attractive investment.
Community Development and Housing
The OBBB also directly influences the construction of residential and community projects. The permanent extension and new cycle of Opportunity Zones (QOZ) and the permanency of the New Markets Tax Credits (NMTC) will continue to provide incentives for private investment in construction projects located in designated low-income and distressed communities.
The bill also makes significant changes to the Low-Income Housing Tax Credit (LIHTC) program, including a renewal of increased 9% LIHTC allocations and a lower private activity bond financing threshold for 4% LIHTC deals. These adjustments are specifically designed to make it more financially viable to develop affordable housing, directly fueling construction in that sector.
Simplified Accounting Methods for Residential Construction
A key provision for residential contractors is the expansion of accounting method options. Under prior law, the percentage-of-completion method (PCM) was generally required for long-term construction projects, forcing contractors to recognize income and pay taxes throughout the life of a project, often before receiving full payment.
But OBBB significantly expands the use of the more flexible completed contract method (CCM), which allows contractors to defer income recognition and associated tax liability until the project is substantially completed. The projects that qualify aren’t only single-family homes; a broad range of residential projects, including multifamily housing, condominiums, and student housing, are included. The bill also extends the allowable project duration for the small contractor exception from two years to three years. These changes are intended to improve contractor cash flow and simplify tax compliance by eliminating the need for complex work-in-progress reporting.
Energy Credit and Incentive Changes
The OBBB makes significant adjustments to the landscape of energy-related tax incentives, too. These adjustment are expected to affect the pipeline of construction projects in both the commercial and residential sectors.
For new wind and solar projects, the bill accelerates the phase-out of the Clean Electricity Investment Credit (Section 48E) and the Clean Electricity Production Credit (Section 45Y). To qualify for these credits, winds and solar projects that begin after July 4, 2026, must now be placed in service by Dec. 31, 2027, while projects that began before July 4, 2026, have until July 4, 2030. This compressed timeline is expected to create a rush of construction activity for projects that can meet the deadline but could also slow down future development.
The bill also eliminates two key tax deductions and credits for energy-efficient construction. The Section 179D deduction, which provided a tax incentive for designing and constructing energy-efficient commercial buildings, is terminated for properties where construction begins after June 30, 2026.
Similarly, the Section 45L tax credit, which provided a credit for the construction of new energy-efficient homes, is removed for homes acquired after June 30, 2026. These eliminations will directly impact contractors who specialized in or relied on these incentives to drive business in energy-efficient design and construction for both commercial and residential properties.
Overall Impact Considerations
In summary, the OBBB introduces a powerful combination of direct tax incentives for construction firms and indirect drivers of project demand across multiple sectors. By altering the costs associated with capital investment and financing, and by creating new incentives for industrial, advanced manufacturing, community development, and residential projects, the bill is positioned to significantly affect the overall volume and type of construction activity.
Anthony Licavoli is the director of Rehmann’s tax consulting group, which boasts specialists with experience investigating and analyzing incentives for real estate developers and investors.
Andrew Rose is a principal of Rehmann’s advisory and tax services. In addition to leading the firm’s commercial industry group, which includes construction, real estate, and dealership clients, Andrew serves as a thought leader and firm-wide resource on tax compliance and consulting matters.
Please reach out to your Rehmann advisor or, or more information on these incentives, contact either CPA directly at [email protected] or [email protected].