Reconciliation Bill: Key Construction Industry Provisions

President Trump’s Reconciliation Bill passed through Congress and was signed into law July 4, 2025. The law brought broad changes for individuals and businesses alike, and for our construction clients, we have compiled our top industry-specific takeaways from the bill:

• 100% Bonus Depreciation is back for good. This is huge news for our clients who buy equipment and vehicles necessary for their work. No additional requirements were added, and this applies to all property acquired after January 19, 2025.
• The Section 179 expensing limitation has increased from $1,250,000 to $2,500,000, and the phasedown threshold increased from $2,500,000 to $4,000,000. Both amounts will be adjusted each year for future inflation. Property placed in service for tax years after December 31, 2024, will qualify for these new limits.
• The 20% deduction for qualified business income (QBI) set to expire at the end of 2026 has now been made permanent for pass-through businesses. This act also has enhanced the phase-in thresholds to $75,000 for single filers and $150,000 for joint filers which will take effect for tax years beginning after December 31, 2025.
• The act increases State and Local Taxes (SALT) deduction from $10,000 to $40,000 for tax years 2025 to 2029, with a phaseout for high income taxpayers, or taxpayers with a modified adjusted gross income over $500,000 in 2025. This act does not address pass-through entity tax elections that have been used to work around the existing SALT cap.
• The act expands the exception to the percentage-of-completion method for certain residential construction contracts to include contracts that have four or more dwelling units, rather than limiting it to four or fewer dwelling units. This will allow applicable contracts to use more favorable accounting methods such as the completed-contract method.
• The Section 179D “Energy Efficient Commercial Building Deduction” is set to sunset on June 30, 2026. Before the act passed, taxpayers were eligible to deduct an amount equal to the cost of energy efficient commercial building property (EEBRP) placed into service that tax year. This applied for buildings where the EEBRP was planned on reducing 25% or more of total annual energy and power costs for interior lighting systems, HVAC, hot water systems, or building envelopment to comparable buildings meeting the minimum requirements. The act terminates the deduction for property constructed after June 30, 2026.
• The 45L “New Energy Efficient Home” tax credit for constructing qualified energy-efficient homes was set to pass after December 31, 2032. This credit allowed $2,500 for ENERGY STAR certified single family or manufactured homes, with a possible $5,000 for Zero Energy Ready Homes certification. There was also a $500 credit per unit for ENERGY STAR for multifamily units, with a possible $1,000 per unit for Zero Energy Ready Homes certification. These amounts could increase to $2,500 and $5,000 per unit if prevailing wage requirements are met. The act now moves the sunset date from December 31, 2032, to June 30, 2026, meaning all construction that begins after the new date will not be eligible to claim the credit.
• The Qualified Opportunity Zone (QOZ) have been made permanent by this act, while also introducing a series of new compliance requirements, allowing state governors to change QOZ designations every 10 years, and narrowing the definition of “low-income community”. This bill also introduces the “Qualified Rural Opportunity Fund” (QROF) as a new category of fund created to target rural areas for development. This new category keeps the 90% “good” asset test but is required to be completely comprised of rural area, or any area with a population less than 50,000. The tax benefits from the QROF are greater than those for regular Qualified Opportunity Funds, such as, a rolling 30% basis step up after 5 years and a 50% reduction to the “substantial improvement” requirement. If you would like to know more about Qualified Opportunity Zones, please see our detailed article here for more information.

While there are many favorable changes included in the OBBB, the sunsetting of the energy credits may change some plans for our clients. As most of these changes take effect next year, please consult your tax advisor soon to make sure that you are prepared for the upcoming 2025 tax year-end.

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