Tax Law Overhaul 2025: What Construction Companies Need to Know Now

Overview: The One Big Beautiful Bill and Its Impact on Construction

In July 2025, Congress passed the “One Big Beautiful Bill” (OBBB), a sweeping tax reform package that introduced major changes affecting a wide range of industries, with construction among the most significantly impacted. Designed in part to stimulate economic growth and incentivize infrastructure development, the bill alters the tax landscape for construction companies in meaningful ways—from accelerated deductions to expanded energy credits and tighter workforce regulations. For construction executives, understanding these changes is critical for financial planning, project bidding, compliance, and long-term business strategy.

As implementation unfolds, additional guidance from the IRS and regulatory bodies is expected. However, there are several key elements already in place that construction firms should begin planning for now. Baldwin CPAs is actively tracking these developments and working with clients in the construction industry to navigate the implications of this complex legislation.

Key Tax Changes Construction Firms Should Watch

Accelerated Depreciation and Expensing Rules

One of the most immediately beneficial changes for construction companies is the expansion of depreciation and expensing provisions. The OBBB permanently extends 100 percent bonus depreciation through 2030, eliminating the phase-down that was originally scheduled to end in 2027. This provision allows businesses to fully deduct the cost of qualifying equipment, machinery, and certain building improvements in the year they are placed in service. Additionally, the bill raises the limits for Section 179 expensing, making it easier for smaller construction firms to immediately deduct the full cost of assets like trucks, software, and tools.

This change significantly improves cash flow, especially for companies investing in large-scale capital expenditures. Instead of spreading deductions over several years, contractors can reduce taxable income in the year of purchase. Firms planning equipment upgrades or technology investments should revisit their timelines to take advantage of this accelerated tax benefit.

Energy-Efficient Project Incentives

The bill also enhances tax incentives for energy-efficient construction and design. Specifically, it expands the Section 179D deduction, increasing the maximum deduction available on a per-square-foot basis and broadening the types of property that qualify. This makes the deduction more accessible to general contractors and design-build firms involved in government or commercial projects. Furthermore, a new bonus credit structure is introduced for those who meet certain prevailing wage and apprenticeship standards, aligning with broader workforce development goals.

Construction companies engaged in green building projects or those bidding on public infrastructure work should evaluate their eligibility for these incentives. By integrating tax planning into project bids and compliance frameworks, firms may gain a competitive edge while improving environmental outcomes. These expanded credits not only support sustainability but also enhance the financial feasibility of high-performance buildings.

Worker Classification Enforcement

Worker classification has long been a contentious area in the construction industry, and the OBBB introduces more stringent rules to address it. The legislation formally adopts a version of the “ABC test” for determining whether a worker is an employee or an independent contractor. This test applies a stricter standard that emphasizes behavioral control, financial control, and the nature of the working relationship. Violations can result in significant penalties, including back taxes, interest, and potential litigation.

For construction firms that rely heavily on subcontractors, this change represents a notable compliance challenge. Companies should conduct a thorough review of their labor practices, especially in jurisdictions that already apply similar rules at the state level. Contracts, documentation, and payment structures may need to be revised to align with federal standards. Proactive measures now can reduce the risk of future audits or disputes, which may prove costly both financially and operationally.

Changes to Qualified Business Income (QBI) Deduction

Another key provision extended by the OBBB is the Qualified Business Income (QBI) deduction, which allows pass-through entities to deduct up to 20 percent of qualified income. This extension provides continued tax savings for many contractors operating as partnerships, sole proprietorships, or S corporations. However, the bill introduces new income thresholds and phase-outs for certain types of service businesses, particularly in areas such as engineering and design.

Construction firms that operate under hybrid structures or maintain separate entities for engineering or design services should take note. While most pure construction activities remain eligible, businesses may need to review their organizational structure to ensure continued access to the deduction. Baldwin CPAs can assist in modeling how these new income limits may affect your firm and help explore restructuring options if necessary.

Tax-Exempt Bond Financing and Infrastructure Projects

The OBBB also includes significant reforms to tax-exempt bond financing, particularly with the goal of accelerating infrastructure development. The bill relaxes the rules around private activity bonds, which can now be used more flexibly in public-private partnerships. It also expands eligibility criteria for local and state governments, making it easier for them to access capital for construction projects such as schools, roads, and utilities.

For contractors that work with public entities or engage in design-build-finance arrangements, this change could lead to an uptick in available projects. The loosening of these restrictions may result in a wave of new infrastructure initiatives, particularly as municipalities respond to population growth and deferred maintenance. Firms positioned to handle these complex projects may find new business opportunities emerging over the next two to three years.

Action Steps for Construction Executives

While some aspects of the One Big Beautiful Bill will be phased in over time, construction leaders should begin preparing now. A detailed tax planning session is a good starting point, particularly for evaluating how accelerated depreciation and QBI rules will affect your business. Companies expecting to purchase equipment in the next fiscal year may want to adjust their procurement timeline to maximize deductions.

Labor practices should also be reexamined. Given the increased enforcement surrounding worker classification, firms that frequently contract with independent tradespeople or specialty subcontractors should ensure proper documentation and consider whether their practices align with the new federal standards. HR and legal teams may need to collaborate closely on these reviews.

For firms involved in public or energy-efficient construction, integrating tax incentive planning into bid strategy could help unlock additional project value. Staying informed about apprenticeship and prevailing wage requirements tied to energy credits is essential to remain compliant and competitive. Lastly, contractors should track further IRS guidance as it becomes available. Final regulations are expected in late 2025 or early 2026, and understanding how they interpret the law will be key to full compliance.

Partner with Baldwin CPAs for Construction Tax Expertise

At Baldwin CPAs, we understand the intricacies of the construction industry and the importance of accurate, strategic tax planning. Our experienced professionals work alongside contractors, builders, and developers to help them respond effectively to regulatory change, improve financial outcomes, and prepare for the future.

We encourage construction businesses across Kentucky to take a proactive approach to the One Big Beautiful Bill.

Contact us today and let Baldwin CPAs help you stay ahead of the curve.

FAQ: One Big Beautiful Bill & Construction Tax Planning

Does the One Big Beautiful Bill affect small and mid-sized construction firms, or just large contractors?

The bill impacts firms of all sizes. Whether you're a small subcontractor or a regional general contractor, the changes to depreciation, worker classification, and tax incentives can influence your bottom line. Each company will need to assess its specific exposure and opportunities under the law.

When do the new tax provisions take effect?

Most of the law’s provisions go into effect for tax years beginning after December 31, 2025. However, because construction projects often involve long timelines, companies are encouraged to begin planning and adjusting strategies well in advance.

Should firms update their accounting systems or contracts as a result of this law?

In many cases, yes. Particularly for firms pursuing energy-related tax credits or working with a high number of independent contractors, systems and documentation will need to be reviewed to ensure compliance with the new standards. Early consultation with accounting and legal professionals is strongly advised.