The One Big Beautiful Bill (OBBB), passed in July 2025, introduces sweeping tax law changes aimed at stimulating business investment and simplifying compliance. While the bill affects a wide range of industries, several key provisions have direct and indirect implications for commercial construction companies. From depreciation and research cost expensing to contract accounting and labor incentives, contractors and construction firm leaders should take note of what’s changing—and how to prepare.
Contents
- 100% Bonus Depreciation Returns
- Design-Build Firms See R&D Expensing Relief
- Energy Efficiency Incentives Sunset
- Greater Flexibility for Revenue Recognition on Residential Contracts
- New Overtime Tax Exclusion for Employees
- Looking Ahead
100% Bonus Depreciation Returns
For contractors, one of the most impactful changes in the bill is the return of 100% bonus depreciation. This provision allows businesses to immediately expense the full cost of qualifying equipment and other fixed assets in the year they are placed in service, rather than depreciating those costs over several years. This change is especially significant for construction companies that regularly invest in heavy equipment, vehicles, and technology infrastructure. With bonus depreciation back at full strength, companies can reduce taxable income in the year of purchase and improve cash flow, making reinvestment more feasible.
Additionally, Section 179 expensing saw an increase to $2.5 million, expanding the pool of eligible purchases that can be fully written off. While bonus depreciation is available for both new and used equipment, Section 179 is often more favorable for smaller businesses or purchases under the deduction cap. Used strategically, these provisions can provide meaningful tax savings on capital expenditures—encouraging contractors to move forward with previously delayed purchases or expansions.
Design-Build Firms See R&D Expensing Relief
Another area of reform that will resonate with construction firms—particularly those engaged in design-build work or offering in-house engineering services—is the rollback of capitalization rules under Section 174. Prior law required businesses to capitalize and amortize research and experimental (R&E) costs over five years, which increased taxable income and discouraged many companies from pursuing the federal research credit.
With the new law, firms may once again deduct R&E expenses in the year incurred. This includes costs associated with project design, prototyping, modeling, and technical problem-solving. Contractors that paused their R&D credit studies when capitalization became mandatory may want to revisit those opportunities now. The change is likely to renew interest in the credit among design-heavy firms and could lead to significant tax savings when leveraged properly.
In addition to the forward-looking benefits, relief is available for companies that have been capitalizing R&E costs. Businesses can either amend prior year tax returns, or expense total remaining capitalized costs, depending on their size and other facts. This provides immediate relief to businesses, rather than having to wait out the remaining amortization period.
Energy Efficiency Incentives Sunset
While some provisions in the OBBB provide new or renewed opportunities, others remove existing benefits. Several energy efficiency-related tax credits and deductions have been repealed, which may directly affect both residential and commercial contractors.
For example, the Section 45L New Energy Efficient Home Credit has been terminated. This credit provided a valuable incentive for homebuilders who incorporated qualifying energy-saving measures into new home construction. Without it, builders may see reduced government support for green building projects—potentially altering the economics of energy-efficient upgrades.
Similarly, the Section 179D deduction for energy-efficient commercial buildings has also been eliminated. This provision was commonly used by commercial contractors and design teams working on projects that met specific energy performance thresholds. While some clients may still prioritize sustainability for regulatory or branding reasons, the loss of this deduction may reduce their financial incentive to invest in higher-efficiency systems or materials.
Contractors may also experience indirect impacts as homeowner clients lose access to energy-efficient home improvement credits, which could reduce demand for related construction or renovation work.
Greater Flexibility for Revenue Recognition on Residential Contracts
The bill also includes a change that improves accounting flexibility for residential contractors. Historically, home construction contracts were allowed to use either the percentage-of-completion method or the completed-contract (exempt) method for revenue recognition. In contrast, larger residential construction projects—such as apartment buildings—were often required to use percentage-of-completion.
Under the new law, all residential construction contracts, including those for multi-unit residential buildings, may now use the exempt method. This change gives firms more control over when revenue is recognized and allows for more effective tax planning. Importantly, the change applies prospectively, so planning ahead for its implementation is essential.
New Overtime Tax Exclusion for Employees
Though not specific to the construction industry, a new provision allowing workers to exclude up to $12,500 of overtime income from their personal taxable income could have a positive impact on construction labor markets. Given the industry’s dependence on overtime to meet project timelines, this change may improve take-home pay for workers without increasing labor costs for employers.
Construction firms will need to be aware of reporting obligations, as employers must begin tracking and reporting this overtime income separately on employees’ W-2 forms. There are no changes to FICA or payroll tax requirements, but further IRS guidance is expected on how to implement these changes administratively.
Looking Ahead
The One Big Beautiful Bill presents contractors with a mix of opportunities and challenges. The return of 100% bonus depreciation and expanded Section 179 limits support investment in equipment. The rollback of Section 174 capitalization rules revives the usefulness of R&D credits for design-focused firms. Meanwhile, the elimination of energy efficiency incentives may shift client priorities and alter project profitability. Finally, greater flexibility in contract accounting and new labor incentives may help firms manage margins more effectively. Construction leaders should work with tax advisors to model the effects of these provisions and adjust project planning, purchasing, and accounting strategies accordingly. A proactive approach can help firms take advantage of the bill’s most favorable provisions while preparing for the impacts of those that have been phased out.
Nick Lagoditz, CPA, joined ARB in 2016 as an associate and became a tax manager in 2022. He provides tax preparation and business advisory services, with a focus on partnerships, real estate professionals, and construction businesses. Previous to ARB, Nick worked at a large international firm for nearly two years.
