Several major tax provisions affecting construction companies are now permanent, while others are scheduled to phase out in the near future. These changes directly affect equipment purchases, project timing, financing strategies, and overall cash flow planning.

What’s changing for contractors?

At a high level, recent tax law updates create a mixed environment for construction companies. These changes include:

• More favorable rules for capital investment and growth
• Less certainty around certain energy-related incentives
• Expanded flexibility in accounting methods and income timing
• Greater opportunity to align tax strategy with project planning

For construction companies operating in tight-margin environments, these shifts make tax strategy an increasingly important part of financial decision-making. While many provisions changed, a handful stand out as having the greatest impact on contractors.

1. 100% Bonus Depreciation Is Now Permanent

• Allows companies to deduct the full cost of eligible assets in the year placed in service
• Applies to qualified equipment, vehicles, and certain building components
• Particularly valuable for fleet upgrades, heavy equipment, and technology investments
• Creates additional opportunities for businesses to move forward with commercial projects by improving cash flow and increasing the after-tax value of capital investments

Who benefits most:

• Equipment-intensive operations
• Companies planning significant capital investments
• Heavy civil contractors

Why it matters:

This creates an opportunity to accelerate planned purchases rather than delay them, reducing taxable income in high-revenue years.

2. Research & Development (R&D) Expensing has Been Restored

• R&D expenses can now be immediately deducted rather than amortized
• Applies to design, engineering, and process-related activities
• Not limited to traditional research environments
• Can apply to process improvements and innovation within construction operations

Common qualifying activities include:

• Design-build engineering work
• Developing new construction methods
• Improving material usage or workflow efficiency
• Testing new building techniques

Why it matters:

This provision represents a hidden opportunity for many contractors who have historically overlooked R&D eligibility.

3. The Qualified Business Income (QBI) Deduction is Now Permanent

• Section 199A QBI deduction allows eligible businesses to deduct up to 20% of qualified business income
• Thresholds have been expanded, increasing eligibility
• Applies to many contractor and construction-related entities

Why it matters:

Permanent availability allows construction companies to plan with greater confidence, especially when evaluating entity structure, compensation strategies, and long-term growth.

4. Revenue Recognition Changes Expand Eligibility for Residential Contractors

• Expanded eligibility for percentage-of-completion exemptions
• Applies to qualifying residential construction contracts
• May allow contractors to defer income recognition
• Improves control over when taxable income is recognized

Who this impacts most:

• Homebuilders
• Residential developers
• Multifamily construction companies

Why it matters:

Greater flexibility in revenue recognition can help align taxable income with actual cash flow, improving liquidity during large projects.

5. Energy Tax Credits are Phasing Out

• Several energy-related incentives are scheduled to phase out beginning mid-2026
• Projects must typically begin construction before phase-out deadlines
• Credits may apply to energy-efficient building components and renewable systems
• Qualification timing is critical

Why it matters:

For contractors involved in energy-efficient projects, this is a use-it-or-lose-it scenario. Delaying project starts could mean losing valuable tax incentives.

6. Interest Deduction Limitations Continue to Impact Financing

• Interest deductions remain subject to Section 163(j) limitations
• Applies to businesses with significant debt-financed operations
• Limits deductions based on a percentage of taxable income
• Particularly relevant in high-interest-rate environments

Why it matters:

Financing decisions may affect taxable income differently than in previous years, requiring closer coordination between tax and financing strategies.

What should construction companies do now?

Construction companies should consider taking the following actions:

• Evaluate upcoming equipment purchases to determine whether accelerating investments could create tax savings
• Review potential eligibility for R&D credits, especially for design-build and process improvement activities
• Assess project timelines to determine whether energy-related incentives can still be captured
• Revisit accounting methods for residential construction projects to identify opportunities to defer income
• Model projected cash flow under new tax rules to understand the timing of deductions and income
• Coordinate tax strategy with project planning, particularly for capital-intensive work
• Review financing structures to understand interest deduction limitations

Proactive planning in these areas can create measurable financial advantages over time.

Stay Ahead of Tax Changes with Lutz

With several tax provisions now permanent and others approaching expiration, timely planning is more important than ever. Our construction experts help companies assess how legislative changes impact their operations and develop strategies that support both short-term decisions and long-term growth. Contact us to learn more.