Nailing Down the Numbers: How the One Big Beautiful Bill Reshapes Construction Tax Strategies

At Brown Edwards, we understand that navigating complex tax legislation is crucial for construction companies' success. During our recent Construction Symposium, our tax experts Carla Brown and Corbin Rice, both CPAs and CCIFPs, delivered essential updates on how recent tax legislation impacts construction companies and their planning strategies.

Individual Provisions That Matter to Construction Owners 

Itemized Deductions 

High-earning construction business owners in the 37% tax bracket should expect approximately a 5.5% reduction in their itemized deductions. However, the qualified business income deduction remains unaffected by these changes. 

State and Local Tax (SALT) Deduction 

The deduction limit has increased to $40,000, but you must still itemize deductions and face phase-outs for modified adjusted gross income over $500,000. For high earners, the pass-through entity tax (PTET) election may still provide the best tax strategy. 

Qualified Business Income Deduction 

This critical deduction for construction business owners is now permanent, with a new minimum deduction of $400 for taxpayers with at least $1,000 of qualified business income. Remember: owner salaries and guaranteed payments reduce the amount qualifying for this deduction, so careful planning of compensation structures matters. 

Game-Changing Business Provisions 

Depreciation Benefits Return 

100% Bonus Depreciation is back for property with recovery periods less than 20 years, effective for property placed in service after January 19, 2025. This provides immediate tax savings but requires careful cash flow planning. 

Section 179 Expensing limits have increased dramatically: 

• Expense limit: Up to $2.5 million (from $1.25 million) 

• Phase-out threshold: Begins at $4 million (previously much lower) 

New Addition: Qualified production property now qualifies for 100% bonus depreciation. This applies to non-residential real property used integrally in manufacturing, production, or refining activities that result in substantial transformation of materials. 

Planning Tip: Consider cost segregation studies for complex projects to identify components qualifying for accelerated depreciation. 

Research and Development Relief 

For small businesses (average gross receipts under $31 million after 2021): 

• Retroactive expensing: Amend 2022, 2023, and 2024 returns, or 

• Catch-up provision: Take all deductions in 2025 or spread over 2025-2026 

Larger businesses can only elect current-year treatment. The election window closes July 4, 2026, making this time-sensitive for affected companies. 

Interest Deduction Improvements 

The Section 163(j) limitation has been modified to allow calculations based on earnings before interest, taxes, depreciation, and amortization (EBITDA), rather than just EBIT. This higher base allows more interest expense deductions, though it also caps the amount of interest that can be capitalized. 

Residential Construction Method Change 

Large residential projects (more than four units, including high-rise condos, senior living, and multi-family housing) can now qualify for the completed contract method rather than percentage of completion. This defers income recognition until project completion, improving cash flow management. 

Clean Energy Provisions - Act Fast! 

Several clean energy incentives now have accelerated expiration dates: 

Vehicle Credits: Most expire September 30, 2025 (alternative fuel vehicle refueling property extends to June 30, 2026) 

Residential Credits: Generally, expire December 31, 2025 

Section 179D Energy Efficient Commercial Building Deduction: Terminates for projects beginning after June 30, 2026. Architects, engineers, and design-build firms should prioritize government and nonprofit projects to claim these deductions before the deadline. 

Important Note: Foreign entities can no longer claim these credits as of July 4, 2025. 

Other Notable Changes 

Reporting Simplifications 

• 1099-K threshold: Returns to $20,000 and 200 transactions (from $600) 

• 1099-MISC and 1099-NEC: Threshold increases to $2,000 (from $600) for tax years beginning after December 31, 2025 

 Business Loss Limitations 

Excess business losses now have revised thresholds, with unused amounts creating net operating losses limited to 80% of future taxable income. 

Qualified Small Business Stock 

For C corporations, the aggregate gross assets limit increases to $75 million (from $50 million), with phased-in exclusions: 

• 3 years: 50% exclusion 

• 4 years: 75% exclusion 

• 5+ years: 100% exclusion (unchanged) 

Maximum excludable gain increases to $15 million or 10 times adjusted basis. 

Strategic Planning for the Next 12-48 Months 

Time-Sensitive Actions 

• Clean Energy Projects: Expedite Section 179D projects to meet June 30, 2026 deadline with thorough documentation 

• R&D Transition: Companies under $31 million gross receipts should evaluate whether to amend prior returns or use catch-up provisions 

• Payroll Systems: Update systems for new 1099 thresholds and overtime deduction tracking 

 Technology Investment Considerations 

The complexity of these changes makes robust accounting and project management software more valuable than ever. Consider systems that can: 

• Track costs in real-time for better forecasting 

• Handle complex depreciation calculations 

• Manage change orders and purchase orders efficiently 

• Provide detailed documentation for tax compliance 

 Contract Language Review 

Work with legal counsel to update contract language addressing: 

• Cost escalation clauses for tariff impacts 

• Risk allocation for material delays 

• Documentation requirements for tax compliance 

 Balancing Tax Savings with Business Needs 

While minimizing tax liability remains important, remember to balance tax strategies with: 

• Financial statement impact: Consider effects on bonding and lending capacity 

• Cash flow management: Accelerated deductions require cash outlays 

• Operational efficiency: Don't sacrifice business operations for tax savings 

Looking Ahead 

These changes represent significant opportunities for construction companies willing to engage in proactive planning. The key is acting quickly on time-sensitive provisions while building systems and strategies that position your company for long-term success. 

The construction industry continues to evolve, and tax planning must evolve with it. Whether you're dealing with tariff uncertainties, taking advantage of enhanced depreciation benefits, or planning clean energy projects, the companies that succeed will be those that stay informed and act decisively. 

Stay connected with Brown Edwards through our podcast, Construct-ive Conversations, and LinkedIn updates for ongoing guidance as regulations and interpretations develop. Our construction team is here to help you navigate these complex changes and maximize the opportunities they present.