Tax Planning Opportunities Multiply for Contractors After OBBBA: Key Provisions for R&E, Depreciation, and Income Reporting

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By Ashlie Forum and Evan Schiller

The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, introducing one of the most significant overhauls of the U.S. tax code in recent years. The legislation not only reaffirms and solidifies many well-established tax provisions that businesses and individuals have relied upon but also introduces a variety of new concepts that will reshape tax planning strategies for years to come. This article highlights several important tax planning opportunities now available to contractors. From changes in depreciation and accounting method options to new research and experimental (R&E) tax incentives designed to spur growth in the construction industry, understanding and leveraging the provisions of the OBBBA will be critical to gaining a competitive edge in this new era of tax policy.

Immediate Deductibility of Research and Experimental Expenses

Whenever you think of R&E expenses, you may picture a technology or science lab with scientists and engineers in white lab coats making breakthroughs. However, R&E expenses include much more than scientific or technological expenses. Many contractors incur R&E expenses and are therefore eligible for the R&E tax credit.

The OBBBA permanently allows immediate deductibility of domestic R&E expenses. Previously, these expenses were required to be capitalized and amortized. The ability to deduct these expenses and take the R&E credit is a significant benefit.

For construction, activities that typically qualify for an R&E tax credit include:

  • Development of estimates based on designs provided by architects or engineers
  • LEED (Leadership in Energy and Environmental Design) and green initiatives
  • Evaluation of engineering and construction methods for improvement in build time or overall performance and reliability
  • Development of unique material transfer systems on project sites (e.g., crane design)
  • Development of temporary support structures for active construction
  • Testing and validation of new mechanical systems to solve technical uncertainties

100% Bonus Depreciation

The OBBBA reinstates and makes permanent 100% bonus depreciation for qualifying property placed in service after Jan. 19, 2025. Bonus depreciation allows contractors to immediately deduct 100% of the cost of qualifying property in the year it is placed in service, rather than recovering the cost over several years through regular depreciation. Construction companies will benefit from this change as it encourages investment in machinery, vehicles, and other assets, improves cash flow, and may accelerate equipment upgrades that have been on hold.

For state and local tax purposes, the impact of bonus depreciation differs from state to state, based mainly on each state’s alignment with federal tax laws. It is essential for contractors to be aware of how their state approaches these provisions. For instance, several states—such as Illinois, New Jersey, New York, and Pennsylvania—have opted to decouple from the federal bonus depreciation guidelines. As a result, construction companies operating in these states are required to add back the federal bonus depreciation deduction to their taxable income when filing state taxes.

Percentage of Completion Exemption Expansion

The OBBBA broadens the scope of the home construction exception to encompass multi-unit residential developments, such as apartment complexes, condominiums, student housing, and long-term care facilities. Under the new provisions, these types of projects are exempt from the requirements of IRC Section 460, which previously imposed specific rules for the reporting of income from long-term contracts. As a result, contractors working on these developments now have increased flexibility and can utilize a range of beneficial tax methods, including percentage of completion (PoC), completed contract method (CCM), or other recognized accounting approaches. This change offers significant potential for tax planning and can improve cash flow and overall project profitability for businesses in the construction sector.

The OBBBA has created a more predictable tax environment for 2026, bringing with it both new opportunities and added complexities. In this evolving landscape, proactive planning and close coordination with tax professionals are essential to maximize benefits and ensure compliance. By staying informed and working collaboratively, contractors can navigate the changes with confidence and position themselves for continued success throughout 2026.

Find Out More

Access NASBP Virtual Seminars on similar topics here: https://learn.nasbp.org/. Keep in the know about federal legislation affecting the surety and construction industries by signing up for the free NASBP SmartBrief weekly e-newsletter: www.smartbrief.com/nasbp.

Ashlie Forumis a tax Managing Director and serves as the Real Estate and Construction Industry Leader in the Southeast Region at CBIZ. She consults with clients on real estate transactions, 1031 exchanges, Qualified Opportunity Zones (QOZs), and cost segregation studies. Forum works extensively with general contractors and large subcontractors, advising on tax compliance, planning, and available credits. She provides tax services to privately held companies and family businesses, specializing in partnership taxation and family office services. She can be reached at [email protected].

Evan Schiller is a tax senior manager at CBIZ. Schiller specializes in real estate and construction for flow through entities and is active in local construction groups, including ABC Gulf Coast. He can be reached at [email protected].

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