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

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 financing options, stricter workforce regulations, and revised accounting methods. 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.

New Qualified Production Property (QPP) Depreciation

A new incentive introduced under the OBBB provides 100 percent first-year depreciation for Qualified Production Property (QPP). This provision applies specifically to assets used in manufacturing, refining, or processing facilities. To qualify, construction must begin after January 19, 2025, and before January 1, 2029, with property placed in service before 2030.

Notably, QPP excludes offices, retail and food service properties, R&D facilities, and property leased to others. For construction firms engaged in industrial or manufacturing projects, however, this change creates substantial opportunity. Contractors may see increased demand for new plant builds and retrofits as owners look to maximize this targeted tax advantage.

Energy-Efficient Project Incentives

The bill enhances incentives for energy-efficient construction and design in the short term, expanding the Section 179D deduction to increase the per-square-foot benefit and broaden eligible property types. It also introduces a bonus credit structure tied to prevailing wage and apprenticeship requirements, rewarding contractors who meet these labor standards.

However, it is important to note that Section 179D is scheduled for repeal for projects beginning after June 30, 2026. This creates a limited window in which firms can capitalize on the deduction. The result may be a surge in demand for energy-efficient projects over the next year, as developers and contractors move quickly to initiate qualifying work before the provision sunsets. Contractors should carefully track project start dates to ensure eligibility.

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.

Accounting Method Changes

The OBBB makes significant revisions to the rules governing construction accounting methods. Under prior law, only “home construction contracts” qualified for exceptions to the percentage-of-completion method (PCM). Now, the exception has been broadened to include “residential construction contracts,” such as multifamily developments.

In addition, the threshold for small business contracts has been extended from two years to three years. This allows more firms to use the completed-contract method, which defers income recognition until the project is finished. For many contractors, these changes simplify revenue recognition, improve cash flow timing, and create greater flexibility in structuring projects. Firms involved in longer-term residential developments should review whether these provisions can be applied to their contracts beginning in 2026.

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.

Research & Experimental (R&E) Expense Changes

The OBBB reverses a key provision of the 2017 Tax Cuts and Jobs Act by restoring the immediate deductibility of domestic research and experimental (R&E) expenses. This change applies retroactively, allowing firms to recover costs capitalized between 2022 and 2024.

For construction businesses, this provision may be especially valuable for those investing in technology-driven innovation. Contractors developing proprietary software, using building information modeling (BIM), advancing prefabrication methods, or designing specialized systems may now claim deductions for these expenses upfront. The provision also extends to construction technology firms offering software-as-a-service (SaaS) solutions, creating significant opportunities for both tax savings and reinvestment in innovation.

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, accounting method changes, and QBI rules will affect your business. Companies expecting to purchase equipment or invest in technology 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, industrial, or energy-efficient construction, integrating tax incentive planning into bid strategy could help unlock additional project value. Tracking project timelines will be especially important in light of the Section 179D sunset. Lastly, contractors should monitor IRS guidance as final regulations are released in late 2025 and early 2026, particularly in areas such as R&E expensing and accounting method elections.

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.