Key Points
- The One Big Beautiful Bill Act (OBBBA), signed into law on 4 July 2025 by President Trump, extends and makes permanent key provisions from the 2017 Tax Cuts and Jobs Act (TCJA), including 100% bonus depreciation, the 20% Qualified Business Income (QBI) deduction under Section 199A, and estate tax exemptions raised to $15 million per individual from 2026.
- Expansion of residential construction contract exceptions from the percentage-of-completion method (PCM), now including multifamily apartments, condominiums, student housing, and long-term care facilities, allowing use of completed contract method for contracts entered in 2026; small business contract threshold extended from two to three years.
- Section 179 expensing limit increased to $2.5 million (phase-out at $4 million), indexed for inflation from 2026; 100% bonus depreciation permanent for assets placed in service after 19 January 2025.
- Immediate deduction for domestic research and experimentation (R&E) costs after 31 December 2024, reversing five-year amortisation; options to recoup prior capitalised costs.
- Business interest deduction limit restored to 30% of EBITDA; New Markets Tax Credit (NMTC) made permanent for low-income community projects.
- State and Local Tax (SALT) cap raised to $40,000 in 2025, increasing 1% annually to 2030 then reverting to $10,000, with phase-downs for high earners; no limits on pass-through entity workarounds.
- Cuts to green energy incentives: Section 179D deduction ends for construction beginning after 30 June 2026; electric vehicle credits expire after 30 September 2025.
- 100% deduction for Qualified Production Property (QPP) costs for manufacturing facilities with construction starting after 19 January 2025 and before 1 January 2029, placed in service by 2031.
- UK Autumn Budget 2025 introduces 40% first-year allowance (FYA) for plant and machinery from January 2026, writing-down allowance (WDA) reduced to 14% from April 2026; business rates reform with banded multipliers.
- UK property income tax rates rise 2% from April 2027 (basic 22%, higher 42%, additional 47%); National Insurance thresholds frozen until 2030-31; CGT relief on Employee Ownership Trusts halved to 50%.
- UK Construction Industry Scheme (CIS) updates via consultation for efficiency and fraud prevention from April 2026.
- India Budget 2026 clarifies pre-construction home loan interest deduction within ₹2 lakh annual cap for self-occupied properties.
The construction industry worldwide faces transformative tax rule changes in 2026, with the US OBBBA delivering permanent incentives for equipment investment and revenue deferral while trimming green credits, as UK and Indian budgets introduce targeted reliefs and hikes that could reshape project viability and cash flows.
What is the Impact of OBBBA on Construction Firms?
The One Big Beautiful Bill Act (OBBBA), enacted on 4 July 2025, marks a pivotal shift for US construction businesses by making several TCJA provisions permanent. As detailed in CBIZ insights, the bill restores 100% bonus depreciation for qualified property placed in service after 19 January 2025, enabling firms to fully deduct costs of machinery, vehicles, and tools in year one. This provision, alongside Section 179 expensing raised to $2.5 million (phase-out at $4 million, inflation-indexed from 2026), accelerates cash flow for capital-intensive operations.
Craig Jackson, Senior Manager at Wiss, emphasises that “100% bonus depreciation is back: Write off equipment, trucks, and tools in year one if placed in service after January 19, 2025.” He adds the need to document in-service dates meticulously to secure deductions. Similarly, Matt Neely and Mark H. Cooter of Cherry Bekaert note that this permanence eliminates the prior phasedown to 0%, simplifying long-term planning.
The 20% QBI deduction under Section 199A is now indefinite for pass-through entities, averting a 7.4% tax hike for high earners. CBIZ highlights its vulnerability pre-OBBBA, stating many construction firms as pass-throughs would have faced increases.
How Do Revenue Recognition Rules Change for Residential Projects?
A standout OBBBA reform expands exceptions to PCM for residential contracts entered post-enactment. Previously limited to buildings with four or fewer units, it now covers apartments, condominiums, student housing, and long-term care facilities, permitting completed contract methods that defer profit until substantial completion.
Cherry Bekaert reports the small business threshold extends to three years, benefiting longer residential projects: “This gives construction firms working on longer-duration residential projects greater flexibility in managing revenue recognition and deferring taxable income.” Wiss confirms, “All residential construction—including large multifamily—can now avoid percentage of completion method,” applicable contract-by-contract for mixed portfolios.
CBIZ specifies effectiveness for 2026 calendar-year contracts, urging review of work-in-progress schedules.
Which Energy Incentives Are Being Cut and Why?
OBBBA tightens green incentives, repealing Section 179D for construction starting after 30 June 2026, impacting energy-efficient commercial designs. Wiss warns, “Energy incentives are tightening fast: 179D generally ends for projects beginning construction after June 30, 2026.” CBIZ notes elimination affects architects and engineers claiming on government buildings, with electric vehicle credits expiring post-30 September 2025.
Cherry Bekaert predicts a pre-deadline surge: “This creates a narrowing window… may see a surge in demand as developers rush to start projects.” Firms must document start dates precisely.
What R&D and Innovation Benefits Await Construction Innovators?
Domestic R&E costs are immediately deductible post-31 December 2024, ending five-year amortisation. CBIZ states, “100% of domestic research and experimentation (R&E) costs paid or incurred after Dec. 31, 2024, to be currently deducted.” Options exist for recouping 2022-2024 capitalised amounts, potentially via refunds for small taxpayers.
Wiss details construction applications like custom software or material testing, cautioning on risk-of-loss requirements: “Whether these activities qualify depends on… the company must bear the risk of loss.” Cherry Bekaert highlights benefits for BIM, prefabrication, and HVAC innovations.
Are There New Opportunities in Manufacturing Construction?
Qualified Production Property (QPP) allows 100% deduction for manufacturing facilities with construction from post-19 January 2025 to pre-1 January 2029, in-service by 2031. CBIZ calls it a boost for bids on production sites. Cherry Bekaert expects demand surge: “This is expected to drive increased demand for… factories, processing plants.”
Exclusions apply to offices or leased property.
What UK Budget 2025 Changes Affect Construction?
Sarah Prothero and Liam McKeevor of Buzzacott outline Autumn Budget 2025 impacts. A 40% FYA for plant/machinery launches January 2026, WDA drops to 14% from April, though full expensing persists: “Many… still achieve 100% upfront deductions.”
Business rates shift to banded multipliers from April 2026, easing small RHL but hiking large sites over £500k RV. Property income tax rises 2% from 2027 (22%/42%/47%), with frozen thresholds to 2030-31 inflating payroll via fiscal drag. CGT relief on EOTs halves to 50%, curbing succession via trusts.
HMRC’s CIS consultation targets 2005 regulations for efficiency and fraud powers from April 2026.
How Does India’s Budget 2026 Clarify Homebuyer Taxes?
Budget 2026 confirms pre-construction interest deductibility within ₹2 lakh cap for self-occupied homes, quelling confusion: “Pre-construction interest will remain eligible… within the existing ₹2 lakh annual cap.”
What Other Global Tweaks Matter?
KPMG Ireland notes enhanced 125% corporation tax deduction for apartment costs, up to €50,000/unit (€6,250 benefit at 12.5%). IRS adjusts 2026 standard deductions: $32,200 joint, $16,100 single. Grant Thornton flags OBBBA’s employee breaks.