The One Big Beautiful Bill Act and Construction: A Surety Professional’s Guide

By Scott Stern of Grassi

For surety professionals, who play a vital role in assessing contractor viability, the One Big Beautiful Bill Act (OBBBA) introduces a new set of financial dynamics to weigh and work through. With broad provisions aimed at capital investment and growth, the act reshapes how contractors approach cash flow, tax strategy, and overall planning. For sureties, this means staying ahead of the curve and understanding the full implications for underwriting and risk assessment.

Bonus Depreciation and Section 179 Expensing 

OBBBA permanently reinstates 100% bonus depreciation for qualifying property placed in service on or after January 19, 2025. Section 179 expensing has also been increased to $2.5 million annually, with a phase-out beginning at $4 million. Through these incentives, contractors can deduct the full cost of qualifying equipment upfront, deferring their current taxable income and creating opportunities to preserve liquidity and reinvest in operations.  

Research & Development Credits 

OBBBA also allows immediate deduction of domestic research and development (R&D) costs in the year they are incurred, rather than amortizing them over five years. Businesses with average gross receipts of less than $31 million may also amend prior returns through a “catch-up deduction” for costs incurred from 2022 to 2024. For contractors, eligible activities may include design innovation, engineering refinement, material testing and process improvements. These deductions can reduce taxable income, creating opportunities to reinvest in innovation and operations.

Interest Expense Deduction 

Under OBBBA, businesses may deduct interest expenses using an EBITDA-based cap, rather than EBIT, allowing depreciation, depletion, and amortization to be included when calculating taxable income. The restoration of a more favorable calculation for interest deductions allows contractors to offset a greater share of interest costs, directly improving cash flow.

Permanent $15 Million Estate and Gift Tax Exemption 

With the construction industry facing a major wave of leadership retirements in the coming decade, succession planning is a growing priority. OBBBA establishes a permanent $15 million individual ($30 million joint) estate and gift tax exemption, providing owners with greater financial certainty when planning for leadership and ownership transitions.

Assessing the Surety Perspective  

For surety professionals, the strategies introduced by the OBBBA warrant a closer view of contractor financials. While many of the provisions do not directly alter Generally Accepted Accounting Principles (GAAP) statements, accelerated depreciation and immediate expensing can create differences between tax and book income that require reconciliation and explanation. Likewise, the expanded use of the completed-contract method may delay revenue recognition, resulting in fluctuations in reported income and profitability. These changes can impact cash flow, project pricing, and long-term wealth preservation for the contractor, all of which can come into play when a surety assesses the viability of the contractor.

Surety professionals should review detailed work-in-progress (WIP) schedules, backlogs, and debt schedules to gain a more accurate picture and better determine whether contractors are utilizing OBBBA’s provisions strategically to preserve liquidity and reinvest in operations. The permanent estate and gift tax exemption may also encourage key conversations about leadership transitions and continuity. By weighing these elements in context, the surety team can gain a clearer view of financial stability while anticipating how contractors are positioned for growth.

Scott Stern, CPA, CCIFP, is a Partner at Grassi and brings over 20 years of experience working in the construction, manufacturing and distribution, and real estate industries. Stern provides business consulting, accounting, and tax services. He assists clients with financial reporting, preparing financial statements, audits, reviews, and compilations. Stern is licensed in both New York and New Jersey and has earned the Certified Construction Industry Financial Professional (CCIFP) designation. He can be reached at [email protected] or 201.808.9730.