How your firm can leverage OBBB tax changes for construction
The One Big Beautiful Bill Act (OBBB) of 2025 is reshaping the construction industry’s tax landscape, from energy incentives and depreciation rules to overtime taxation and R&D expensing.
These sweeping changes present both challenges and opportunities for construction leadership. Whether you’re managing large-scale commercial projects, overseeing family-owned operations or planning long-term tax strategies, understanding the implications of OBBB is critical.
Here’s an overview of key OBBB tax changes for construction and practical ways to adapt your tax planning:
179D and other energy incentives
Several key energy tax incentives are being phased out in the OBBB.
The most notable shift is the sunset of the Section 179D Energy Efficient Commercial Buildings Deduction, which offered firms a significant $5.81 per square foot deduction for energy-efficient improvements.
While final guidance on how these incentives will phase out hasn’t been released, there are some details firms can use to plan for their energy projects:
- Section 179D: Deductions phase out for projects beginning after June 30, 2026.
- Section 45L: Incentives end for residential units acquired after June 30, 2026. (Acquisition includes occupancy by an end user.)
- Investment Tax Credit: Projects must begin construction by July 4, 2026, and be placed in service by December 31, 2027, to remain eligible.
- Foreign component restrictions: Projects using materials from prohibited foreign entities may lose eligibility for certain credits.
While the window to capitalize on these incentives is closing soon, strategic planning can help you maximize the return on energy projects before they disappear.
Firms should prioritize working with stakeholders such as general contractors, engineers and tax advisors to help ensure project timelines align with the IRS deadlines. It’s also important to thoroughly document any projects to help preserve eligibility when further guidance is released.
Qualified business income deduction
The Tax Cuts and Jobs Act (TCJA) created the 199A Qualified Business Income (QBI) Deduction, but it was set to sunset on December 31, 2025.
The OBBB has made this deduction permanent, allowing eligible construction businesses to deduct up to 20% of QBI from their taxable income. Additionally, income thresholds will now be indexed to inflation, and a minimum deduction for smaller operations has been introduced. However, high-income firms must still navigate wage and property-based limitations.
The OBBB QBI deduction can reduce the tax rate for contractors, subcontractors and construction firms, especially those operating as pass-through entities. However, high-income firms may still have to navigate wage and property-based limitations.
For all firms, understanding and leveraging this deduction can lead to improved cash flow and minimized tax exposure.
OBBB Section 460(e) accounting changes
The OBBB delivers a strategic tax advantage for construction firms by expanding access to more favorable accounting treatment under Section 460(e).
Key changes include:
- Percentage-of-completion accounting exemption: Previously, residential construction contracts were required to use the percentage-of-completion method (PCM) for at least 70% of the contract. Under the new law, qualifying firms may now use any permissible method, including a 100% exemption from PCM, offering more control over how and when revenue is recognized.
- Broader Eligibility: The exemption now applies to contracts involving more than four dwelling units, providing opportunities for larger multifamily and mixed-use residential projects to benefit.
These changes allow firms to defer revenue recognition on a broader range of projects, potentially improving cash flow and making tax planning more flexible. To take advantage, firms should review their current and upcoming contracts to determine eligibility, and coordinate with tax advisors to optimize accounting methods.
Section 179 and 100% bonus depreciation
The OBBB introduces powerful tax planning tools for construction firms by expanding Section 179 expensing and permanently reinstating 100% bonus depreciation.
Key changes include:
- Section 179 deduction: The OBBB increased the deduction limit to $2.5 million, with a phase-out threshold of $4 million, indexed for inflation. The deduction applies to qualifying equipment, off-the-shelf software and certain building improvements.
- 100% bonus depreciation: Bonus depreciation is now permanent for qualifying assets placed in service after January 19, 2025. It applies to qualifying assets with a useful life of 20 years or less.
These two provisions can help firms improve cash flow, reduce taxable income and enhance project-level ROI. They can also help maximize the time value of money as businesses face interest rate uncertainty and market volatility.
To make the most of these provisions, work with your tax advisor to:
- Align asset purchases and project timelines to help ensure eligibility.
- Evaluate state conformity. (Not all states follow federal depreciation rules. For example, Wisconsin does not conform to bonus depreciation, which could impact your state tax liability.)
- Compare federal and state-level benefits to determine the most cost-effective depreciation strategy.
OBBB overtime tax exemption
The OBBB introduces a major tax break for workers by exempting the overtime premium from federal income tax — a move that could reshape compensation strategies and payroll operations.
The new law allows qualifying workers to deduct the extra pay they earn working overtime from their taxable income, regardless of whether they itemize deductions. However, overtime is still subject to Social Security, Medicare, and state/local taxes.
The deduction limits are up to $12,500 per year for single filers, and up to $25,000 per year for joint filers. It only applies to workers earning less than $150,000 if single or $300,000 if married filing jointly.
The provision is retroactive to January 1, 2025, and applies through tax year 2028. While specifics on qualified overtime compensation are still unclear, firms need to adapt payroll processes now, including updating payroll systems to track and report qualifying overtime.
Firms lacking in specialized knowledge or personnel to make the change may want to consider outsourcing payroll to help supplement internal teams, maintain compliance and reduce administrative burden.
OBBB R&D deduction
The OBBB R&D deduction provides tax relief for businesses investing in innovation by restoring immediate expensing of domestic R&D costs.
Starting in tax years beginning after December 31, 2024, businesses can immediately deduct domestic research and experimental (R&E) expenses in the year they are incurred. There is also retroactive application for small businesses (under $31 million in gross receipts) to amend returns to 2022 and reverse prior capitalization. And businesses can elect to deduct remaining unamortized domestic R&D from 2022–2024 over one or two years starting in 2025
There is no change to the treatment of foreign R&E expenses. These must continue to be capitalized and amortized over 15 years, requiring careful tracking of domestic vs. foreign research activities.
For firms investing in U.S.-based research, these changes offer improved cash flow through accelerated deductions, while simplifying tax compliance.
Increased lifetime exemption
The OBBB establishes a new, permanent lifetime estate and gift tax exemption of $15 million per individual, with inflation adjustments beginning in 2027.
This change also applies to the Generation-Skipping Transfer (GST) tax exemption, aligning it with the new estate and gift tax thresholds. The top federal tax rate for estate, gift and GST remains at 40%.
For construction industry leaders who manage family-owned businesses or significant assets, the increased exemption provides a strategic opportunity to preserve and transfer wealth more efficiently.
Other OBBB tax changes
Some additional changes that may impact construction firms or leadership include:
- The excess business loss deduction was made permanent. Owners of pass-through entities are limited to a deduction of $250,000 for single filing or $500,000 for married filing jointly.
- Tax rates established under the TCJA are now permanent.
- The state and local tax limit has been temporarily raised from $10,000 to $40,000 for taxpayers with income less than half a million.
- Pass-through entity taxes allow pass-through entities to pay state taxes at the business level and capture deductions that would otherwise potentially be lost if they were passed through to the business owners.
Your next steps
With the OBBB introducing a wide array of tax reforms, construction firms need a proactive and strategic approach to stay well-positioned to capitalize on new opportunities.
As you evaluate how your firm will respond to the OBBB, consider the following actions:
- Collaborate with your CPA or tax advisor to model potential impacts, identify planning opportunities and develop strategies that align with your business goals. Early engagement can help mitigate risk and optimize tax strategies.
- Stay informed on evolving regulations and updated guidance to help ensure timely compliance and to avoid missing critical deadlines.
- Evaluate your internal systems and processes, especially around payroll, project scheduling and cost tracking, to help ensure they can accommodate new requirements. Consider outsourcing functions like payroll to streamline compliance and reduce administrative burden where needed.
By taking a deliberate and informed approach, construction leaders can not only adapt to the OBBB successfully but also unlock meaningful financial advantages for their firms.
How Wipfli can help
Construction leaders need more than just awareness to stay ahead of the curve — they need effective strategies. Wipfli’s construction specialists apply decades of industry experience to help you navigate the complexities of the OBBB and a challenging business environment.
Reach out today to learn how you can maximize new opportunities or see the latest OBBB updates on our policy page.
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