For construction companies, tax planning often goes hand in hand with business planning. Decisions about buying equipment, financing purchases or investing in new technology can affect both your taxes and cash flow.
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, made several tax changes that are especially important for contractors. As 2025 tax returns are completed and companies look ahead to 2026, here are six changes construction business owners and financial teams should know.
100% Bonus Depreciation Is Back
One of the biggest changes for contractors is the return of 100% bonus depreciation.
Qualifying property acquired and placed in service after January 19, 2025, may be fully deducted in the year it is placed in service. This can include construction equipment, machinery, computers, and certain other business assets. Both new and certain used property can qualify.
The key phrase is “placed in service.” Simply ordering equipment or making a deposit before year-end may not be enough. The equipment generally needs to be ready and available for use.
Real-world example: A contractor replaces two aging skid steers and takes delivery before year-end. If the equipment qualifies and is placed in service by December 31, the company may be able to deduct the full cost that year.
For contractors planning major purchases, timing matters. But the purchase should still make sense for the business, its workload and cash flow—not simply because a deduction is available.
Section 179 Limits Increased
Section 179 is another option that allows businesses to immediately deduct the cost of qualifying equipment and property.
For 2025, the deduction limit increased to $2.5 million, with the deduction beginning to phase out when qualifying purchases exceed $4 million. For 2026, those amounts increase to $2.56 million and $4.09 million.
Bonus depreciation and Section 179 can both create significant deductions, but they work differently. The best option depends on taxable income, equipment purchases, state taxes and the company’s overall financial picture.
Rather than automatically taking the largest deduction available, contractors should look at how each option fits into their broader tax plan.
Research and Development Costs Can Again Be Deducted
The new law also changed the rules for domestic research and experimental costs. Beginning in 2025, qualifying U.S.-based research expenses can generally be deducted in the year they are incurred instead of being spread over five years. The rules specifically include qualifying domestic software-development costs.
This may apply to construction companies investing in new systems, processes, or technology. Developing new ways to build things could also qualify.
Real-world example: A construction company develops its own estimating tool or improves an internal project-management system. Some of the development costs may qualify for an immediate deduction.
Not every technology or software expense qualifies, so contractors should review these costs with their tax advisor rather than assuming they fall under the new rules.
Companies that capitalized domestic research costs in prior years may also have additional planning opportunities.
The 20% QBI Deduction Is Permanent
Many construction companies operate as S corporations, partnerships, or other pass-through entities.
The qualified business income, or QBI deduction allows eligible owners to deduct up to 20% of qualified business income, subject to income, wage, property and other limitations. The OBBBA made the deduction permanent rather than allowing it to expire after 2025.
That gives business owners more certainty when considering longer-term tax, compensation, and entity-planning decisions.
The SALT Deduction Cap Increased
The federal deduction for state and local taxes, commonly called the SALT deduction, also increased.
For 2025, the limit increased from $10,000 to $40,000 for most taxpayers, although the deduction can be reduced for higher-income taxpayers. The cap is $40,400 for 2026 and continues at higher temporary levels through 2029.
Real-world example: A Minnesota construction company owner who pays significant state income and property taxes may be able to claim a larger personal federal deduction than under the previous $10,000 cap.
This is an individual itemized deduction for the business owner, not a deduction taken directly by the construction company.
Business Interest Rules Are More Favorable
The law also changed the Section 163(j) business interest limitation.
Beginning in 2025, depreciation, amortization, and depletion are again added back when calculating adjusted taxable income for purposes of the limitation. In practical terms, this may allow some businesses to deduct more of their interest expense.
Real-world example: A contractor finances several pieces of heavy equipment to support a growing backlog. The updated interest rules may allow more of the financing cost to be deducted.
This can be especially relevant for equipment-heavy contractors that rely on financing to purchase machinery, vehicles, and other assets.
What Should Contractors Do Now?
These changes create opportunities, but they do not mean every contractor should rush to buy equipment or accelerate deductions.
The bigger issue is timing.
Real-world example: A contractor has a strong backlog and knows it will need to replace equipment before next spring. Ordering early enough to have that equipment delivered and placed in service before December 31 could affect when the tax deduction is available.
If your company is considering a major equipment purchase, financing new assets, investing in technology or planning around year-end taxable income, it is worth reviewing those decisions before year-end.
Construction companies already plan carefully around backlog, cash flow, bonding, staffing and financing. Tax planning should be part of that same discussion.
The goal should not simply be to create the largest possible tax deduction. It should be to make tax decisions that also support the long-term needs of the business.
Before making a major purchase or year-end tax decision, talk with your CPA. If you have questions about how these changes affect your construction business, contact the team at John A. Knutson & Co., PLLP.
Jason Loven, CPA, CCIFP, works closely with contractors to help them better understand their financial information and use it to make business decisions. As a Certified Construction Industry Financial Professional, Jason brings specialized knowledge of the financial issues construction companies face. John A. Knutson & Co., PLLP has served businesses for more than 100 years and has a team with extensive experience working with companies in the construction industry.