What the Big Beautiful Bill Means for Construction and Real Estate Development Companies
The One Big Beautiful Bill (OBBB), enacted on July 4, 2025, introduces significant changes to the tax code and related provisions that directly affect construction and real estate development companies. These changes are designed to incentivize capital investment, stimulate growth, and create a more favorable environment for long-term planning in capital-intensive industries.
1. 100% Bonus Depreciation
OBBB permanently reinstates 100% bonus depreciation for qualifying tangible property placed in service after January 19, 2025. Bonus depreciation is particularly meaningful for construction businesses that buy large amounts of tangible assets, such as excavators, cranes, concrete mixers and modular building systems. For lessors of real property, it can mean immediate deductions for large renovations (e.g., fit out for new tenants) as qualified improvement property. For construction and development companies, this creates an opportunity to accelerate tax deductions, improve cash flow, and reinvest in operations.
2. Simplified Accounting Methods for Residential Construction
The OBBBA allows taxpayers to use simplified accounting methods for residential construction contracts rather than the percentage of completion method (PCM). This can create a significant timing difference and enable contractors to delay revenue recognition.
The new law largely mirrors the existing rules for home construction contracts, but it now includes multifamily construction that encompasses condominium and apartment projects. This method is available for the first tax year beginning after July 4, 2025, allowing taxpayers some time to consider the best methods for them and the procedure change if desired. Enabling developers of multi-family projects to delay revenue recognition may improve cash flow and reduce taxable income during long build cycles.
3. Section 179 Expensing Increase
The Section 179 limit has been raised to $2.5 million, with the phase-out threshold beginning at $4 million. This higher limit applies to qualifying property placed in service after December 31, 2024. Construction companies investing in tools, vehicles, and equipment stand to benefit substantially.
4. Qualified Business Income (QBI) Deduction Permanence
The QBI deduction, allowing eligible pass-through entities to deduct 20% of qualified business income, is now permanent. Threshold amounts have been increased to $75,000 (single) and $150,000 (joint), with a new minimum deduction of $400 for QBI above $1,000. For owner-managed construction and development companies, this provides predictable tax savings and simplifies long-term planning. The deduction puts pass-throughs in parity with corporations, so it generally rewards real estate and construction businesses that get other benefits from operating as pass-throughs. The permanent QBI deductions now may shift the balance of benefits in favor of pass-through status.
5. Domestic R&E Expensing
The bill restores immediate expensing of domestic research and experimental (R&E) expenses, retroactive for small businesses with revenue under $31 million. For larger companies, an election-based method is available. Construction and development firms investing in innovation—such as new construction methods or project management technology, or engineering design—can deduct these costs in the year incurred.
6. Business Interest Deduction
The OBBBA returns to the original Tax Cuts and Jobs Act calculation for business interest expense limitations. Adjusted taxable income (ATI) for purposes of the Section 163(j) business interest deduction now excludes depreciation, amortization, and depletion. This effectively increases the amount of interest that can be deducted, benefiting highly leveraged projects and developers utilizing significant financing. The business interest expense limitation under 163(j) is one of the biggest balancing actors when considering investment in new projects.
The reinstatement of the depreciation addback may increase adjusted taxable income enough to open up projects and acquisitions premised on higher leverage and reduce the tax burden for contractors in capital-intensive segments, such as heavy highway, civil and excavation subcontractors.
7. Excess Business Loss Limitation
The excess business loss limitation for non-corporate taxpayers has been made permanent. This limits allowable business deductions to income plus a threshold amount, with any excess carried forward as a net operating loss. Developers with fluctuating income can better manage tax liabilities over multiple years. Structuring ownership and income allocation efficiently can help ensure that losses are absorbed where they provide the greatest tax benefit, especially in years with uneven project income.
8. Qualified Opportunity Zones (QOZ’s)
The OBBBA makes QOZ’s a much more viable long-term planning option, as it creates 10-year rolling designations for new opportunity zones. The previous law was a limited window anchored to specific dates. Now, QOZ’s offer deferral of capital gains for up to five years if the proceeds are reinvested into a qualified opportunity fund (QOF), followed by a basis increase to lower gain recognition for gain held in a QOZ for the five years.
Also, the OBBBA adds an enhanced basis increase for investments in certain designated rural opportunity zones. If taxpayers hold the QOZ property for 10 years, appreciation on the invested amount may be excludable from income. The law also changes the rules for qualification and now requires significant reporting with penalties for not complying with the reporting requirements.
With rolling 10-year designations and enhanced basis increases for rural zones, real estate and construction companies now have a durable framework for deferring and excluding capital gains. This opens the door to strategic reinvestment in high-impact projects, especially in underserved areas, while optimizing after-tax returns. Taxpayers looking to dispose of low basis properties may find value in deals that would not have made sense if paying tax on the gain currently.
9. Qualified Production Property Depreciation
The bill introduces a new provision allowing full expensing for nonresidential real property used in manufacturing or production (excluding offices, lodging, and sales facilities). To qualify, construction must begin after January 19, 2025, and before January 1, 2029, with the property placed in service before January 1, 2031. For developers, this presents a unique chance to enhance ROI on specialized build projects. Although lessors are excluded, the provision could reshape the economics of industrial projects and encourage creative structuring as IRS guidance evolves. For industrial developers, QPP may create a competitive advantage in attracting owner-operators, as the tax benefits are available only to those who perform the production activity directly.
10. Real Estate Targeted Deductions and Credits
The OBBBA terminates or phases out several incentives for energy efficiency and clean energy production commonly used by real estate and construction businesses. A few are extended or expanded. Some of the key changes include:
- The section 179D deduction for energy-efficient commercial buildings becomes unavailable for construction begun after June 30, 2026.
- The homebuilder credit is terminated for homes acquired after June 30, 2026.
- The low-income housing credit is made permanent with an increased state housing credit ceiling. It adds a new 25% bond financing requirement.
- Wind and solar investment and production credits are terminated or wind and solar facilities placed in service after December 31, 2027, except for facilities that begin construction before July 4, 2026. The OBBBA terminates credits for property leased to homeowners.
Accelerating project timelines to ensure construction begins before key phaseout dates-especially for energy-efficient buildings and renewable energy facilities-may enable businesses to take advantage of current deductions and credits.
11. Taxable Real Estate Investment Trust Subsidiaries (TRS)
The OBBBA increases the percentage of a REIT’s total assets that may be represented by securities of one or more TRS’s from 20% to 25%, effective for taxable years beginning after December 31, 2025. This enables considerable expansion of the investments a REIT can effectively hold.
This change enables REIT’s to diversify income streams and pursue broader investment strategies without jeopardizing their tax status. This may be especially valuable for construction firms with affiliate service entities or vertically integrate operations.
The increased TRS cap gives REIT’s greater latitude to internalize value-added services-such as construction management, leasing, or design-which could enhance operational control and margins without breaching asset tests.
12. State and Local Tax Deduction Limitation (SALT cap) and Pass Through Entity Tax (PTET) Deduction
The OBBBA raises the SALT cap to $40,000 beginning in 2025 through tax year 2029, after which it will revert to $10,000. The limitation is phased down for taxpayers with modified adjusted gross income over $500,000 for the same period. Both the limitation and the modified AGI threshold are increased by 1% each year through 2029.
Meanwhile, the OBBBA makes no changes to the deductibility of PTET’s by a pass through entity, what types of taxpayers can make state PTET elections, or the ability of taxpayers to make state PTET elections.
The temporary increase in the SALT cap may be especially meaningful for residential developers and property owners in high-tax states, where the cap can influence homebuyer affordability and after-tax returns.
Strategic Implications
For construction and development companies, these provisions create an environment ripe for strategic tax planning and accelerated growth. From aligning project timelines to service-in-service deadlines, to leveraging cost segregation studies for bonus depreciation, to rethinking financing strategies in light of expanded interest deductibility, early movers can position themselves for competitive advantage.
The window for certain benefits will not remain open indefinitely. Companies that plan ahead, coordinate with their tax advisors, and integrate these provisions into operational strategy will be best positioned to capitalize on the OBBB.
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