Recently, I had the opportunity to sit down with two of our tax directors at Brown Edwards - Carla Brown and Corbin Rice - to discuss the One Big Beautiful Bill and its impact on the construction industry. As someone who's been covering construction topics for years, I wanted to break down this complex legislation in a way that makes sense for contractors, subcontractors, and everyone working in our industry.
The Big Picture Impact
When we look at the overall impact of this bill on construction, the effects aren't going to hit immediately. As Carla pointed out during our conversation, the construction industry tends to lag behind certain economic trends because most companies have existing backlogs - projects that stretch out 8, 12, even 18 months. You might not feel the full impact right away, but you'll definitely see it as you start bidding on new work.
That said, there are some immediate tax-saving opportunities that contractors should be aware of. The bill extends depreciation options, provides information for expensing R&D credits, and makes the estate and gift tax exemption permanent. These changes can help within the next 12 months.
Immediate Effects on Contractors and Subcontractors
Several provisions in the bill will have immediate effects on how you operate:
Prevailing Wage Rules and Buy American Clauses: These will definitely impact how jobs are priced and bid, especially on public works projects. You'll need to factor these requirements into your project planning and cost estimates.
Residential Contract Deferrals: This is a big one. Previously, only home construction contracts involving buildings with four or fewer dwelling units could use the completed contract method to defer revenue. Now, this has been expanded to include projects with more than four units - high-rise condos, senior living facilities, and multifamily housing. This allows contractors to defer income recognition until the contract is actually completed, which can be a significant cash flow benefit.
Green Building Incentives: Here's something time-sensitive - the Section 179D energy efficient commercial building deduction will terminate for projects that begin after June 30th, 2026. If you're an architect, engineer, or design-build firm, you'll want to act quickly to claim these deductions for government and nonprofit projects before time runs out. The same deadline applies to the energy efficient home credit for home builders.
Enhanced Depreciation Benefits
The bill significantly increases depreciation opportunities:
- Section 179 has been increased to $2.5 million this year, with the phase-out starting at $4 million
- 100% bonus depreciation is now permanent for property placed in service starting January 19, 2025
While these provide immediate tax deductions, remember to consider the cash flow implications. Large equipment purchases require significant upfront cash, which could impact your working capital and potentially affect your debt ratios and bonding capacity.
R&D Credits Get More Attractive
If you've been hesitant about pursuing R&D credits in the past, now might be the time to revisit that decision. You can study three years at a time if it's still open under the statute, and if you've been taking the credit but had to amortize costs, you now have options to either amend returns or take the deduction in the current year.
Funding and Timeline Changes
The bill allocates substantial federal funding for infrastructure projects, which should boost construction activity in transportation, utilities, and public facilities. In theory, this means more construction jobs and opportunities in related fields like engineering, design, and project management.
However, there's a learning curve with any major policy change. The initial rollout might cause some delays as everyone implements new processes - figuring out where to go for permits, understanding new requirements, and adapting to streamlined procedures. Short-term delays are possible, but the long-term goal is improved efficiency.
Small and Minority-Owned Businesses
Under the current administration, there's some uncertainty about set-asides for small, women, and minority-owned businesses, but for now, these programs remain intact. The SBA websites still provide certification information and set-asides are still available.
One permanent change that benefits all pass-through entities: the QBI (Qualified Business Income) deduction was set to expire in 2025, but this bill makes it permanent. This is significant for most construction companies organized as partnerships, S corporations, or LLCs.
Workforce Development Initiatives
The bill includes measures to address our industry's ongoing labor challenges. There are initiatives to encourage educational institutions to provide lower-cost workforce training programs, targeted financial aid for students in these programs, and support for expanding apprenticeship opportunities.
We're seeing a general trend toward promoting trades in high schools and colleges, showing students there are multiple paths to success. The bill encourages collaboration between educational institutions and businesses, which should help develop the skilled workforce we desperately need.
Planning for the Future
As we look ahead to the next 12-24 months, here's what I recommend:
Reassess Your Budget: Factor in potential cost increases and supply chain issues. Build contingencies into your projections now rather than being caught off guard later.
Strengthen Cash Flow Management: With potential material delays affecting project timelines, optimize your billing processes and maintain strong liquidity options.
Review Your Contracts: Work with your attorney to add appropriate escalation clauses and update force majeure language to address potential delays and cost increases.
Invest in Technology and Training: Good software for contract tracking, cost management, and payroll reporting will be crucial for compliance and real-time decision making.
Build Strong Relationships: Maintain open communication with customers, suppliers, subcontractors, attorneys, and CPAs. Stay informed about market trends and regulatory changes.
Final Thoughts
This bill represents both opportunities and challenges for our industry. While there are immediate tax benefits and long-term infrastructure funding increases, there are also new compliance requirements and potential supply chain pressures to navigate.
The key is being proactive rather than reactive. Don't wait to understand how these changes affect your specific situation. Reach out to your advisors - your CPAs, attorneys, and other professionals with construction experience. As Carla mentioned in our conversation, this is what we train for, and we're here to help you navigate these changes successfully.
The construction industry has always been about building for the future. With proper planning and the right professional guidance, this legislation can provide the foundation for growth and success in the years ahead.
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