With the latest federal tax bill signed into law, construction company owners and financial leaders face critical updates that could reshape their tax planning strategies. The new provisions bring significant opportunities—as well as challenges—particularly for those managing capital investments, complex business structures, and varying types of income.

This article highlights the most important tax changes for construction firms and what you need to do now to stay ahead.

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Bonus Depreciation: Full Expensing Returns

The new tax legislation restores and permanently sets bonus depreciation at 100% for qualified property acquired and placed in service after January 19, 2025. Previously, under the Tax Cuts and Jobs Act (TCJA), 100% bonus depreciation applied only to property placed in service between September 27, 2017 and December 31, 2022, after which it phased out by 20% per year. 

Why This Matters to Construction industry: Construction companies often invest heavily in equipment, technology, and facilities. The ability to immediately expense 100% of the cost of new (and qualifying used) machinery, vehicles, and certain building improvements can significantly reduce taxable income in the purchase year. This is especially beneficial for growing firms looking to gain a competitive edge through capital investment.

Action Item: Plan major asset purchases to align with placement-in-service dates in 2025 or later to maximize deduction timing. This option may be more flexible than Section 179 expensing, which carries limits based on dollar thresholds and business income. 

Section 199A QBI Deduction: Permanent Pass-Through Tax Relief

Section 199A, the Qualified Business Income (QBI) deduction, is now permanent. This provision allows eligible owners of S Corporations, partnerships, and sole proprietorships to deduct up to 20% of qualified business income on their personal returns, subject to certain wage and property limits.

Details for Contractors: Construction LLCs, partnerships, and S Corporations generally qualify, allowing owners to benefit from a lower effective tax rate on business profits that flow through to individual tax returns.

Key limits apply: The deduction is capped at the greater of (a) 50% of W-2 wages paid, or (b) the sum of 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. Full deductions are allowed for owners with taxable income below $394,600 (married) or $197,300 (single). Above these levels, phase-outs apply; the phase-in ranges have been expanded to $75,000 (single) and $150,000 (married). Businesses considered “Specified Service Trades or Businesses” (SSTBs), such as architectural/engineering in certain cases, may be subject to additional phase-outs.

Action Item: Review your business structure and compensation strategies to ensure you are maximizing QBI deductions, considering both W-2 wage thresholds and property components.

State and Local Tax (SALT) Deduction: Higher Cap, Strategic Choices

The federal deduction limit for state and local taxes—previously $10,000 under the TCJA—has been raised to $40,000 for tax years through 2029, with indexing for inflation. In 2030, it will revert to $10,000.

Why Construction Companies Should Care: With operations often spread across multiple states and significant state income or gross receipts taxes, this increased deduction cap offers substantial relief to owners and entities who previously exceeded the $10,000 cap.

Many construction businesses have used Pass-Through Entity (PTE) taxes as a workaround, where the entity pays state tax and owners receive a credit on their personal returns. With the higher federal cap, some may find it more advantageous to revert to individual SALT deductions, while others may stick with PTE-level payments depending on state rules.

Action Item: Work with your tax advisor to compare scenarios—taking SALT through Schedule A versus continuing the PTE workaround—and factor state-specific tax regimes into your analysis.

Conclusion and Next Steps for Construction Leaders

The new tax law offers contractors and construction company owners valuable tools to improve cash flow and reduce overall tax liability, but only for those who act strategically. Immediate actions should include scheduling capital asset purchases to maximize bonus depreciation; reviewing business/ownership structures for best QBI outcomes; and optimizing state and local tax strategies as limits change. 

Author: Joseph Maes, CPA, is a Senior Tax Manager at REDW Advisors & CPAs. For more information, contact joseph.maes@redw.com or www.redw.com.