When President Trump signed the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, the construction industry had to reckon quickly with a complex piece of legislation. The bill — more than 1,100 pages and projected to add $2.3 trillion to federal deficits over ten years, per the Congressional Budget Office — contains a broad mix of provisions shaping what gets built, who builds it, and how construction firms are taxed. Major trade associations were largely supportive of the tax provisions, but the OBBBA also accelerates the phase-out of Inflation Reduction Act credits that have driven solar, wind, battery, and advanced manufacturing construction — creating urgent deadlines for projects that depend on those incentives.

The Big Win: Pass-Through Deduction Made Permanent and Raised

The most financially significant provision for the construction industry is the permanent extension and expansion of the Section 199A qualified business income deduction for pass-through entities. Most construction firms in the United States are structured as S corporations, partnerships, or sole proprietorships — pass-through entities whose income flows directly to the owners' personal tax returns. The 199A deduction, originally enacted in the 2017 Tax Cuts and Jobs Act, allowed those owners to deduct 20% of their qualified business income, partially offsetting the corporate tax rate differential.

Under the OBBBA, the 199A deduction is made permanent and raised from 20% to 23%, according to Engineering News-Record's analysis. The Associated General Contractors of America, which represents the majority of commercial and industrial construction firms, had made this a top legislative priority, noting that the deduction covers the vast majority of construction companies by number — and that its expiration would have effectively been a significant tax increase on most of the industry. With the deduction now permanent, construction business owners have the certainty they need to make long-term decisions about firm structure, capital investment, and succession planning.

100% Bonus Depreciation Restored

The OBBBA restores 100% bonus depreciation for qualifying property placed in service on or after January 19, 2025, with no limitations. Under the 2017 TCJA, bonus depreciation had been scheduled to decline — to 80% in 2023, 60% in 2024, and further through 2026. For construction equipment, vehicles, and certain facility investments, the ability to immediately expense the full cost in the year of acquisition is a powerful cash-flow and tax-planning tool.

The practical effect for contractors is immediate: equipment purchases, tools, and qualifying capital expenditures made in 2025 and 2026 can be fully expensed rather than depreciated over multiple years. This creates a meaningful incentive for equipment investment — particularly relevant as contractors managing large project pipelines face increasing equipment utilization demands. According to tax advisors at Grassi Advisors, the OBBBA also raises the Section 179 deduction cap to $2.5 million with a phase-out threshold of $4 million, both indexed for inflation.

A New Deduction for Manufacturing Facility Construction

One of the more targeted provisions is a new 100% deduction for Qualified Production Property (QPP) — newly constructed nonresidential real property primarily used for manufacturing, production, or refining. To qualify, construction must begin after January 19, 2025, and the property must be placed in service before January 1, 2031, according to Grassi Advisors. For industrial contractors and developers, the QPP deduction allows immediate expensing of qualifying facility construction costs — a powerful incentive for domestic manufacturing reshoring through the end of the decade.

Permitting Acceleration for Energy and Industrial Projects

The OBBBA includes an expedited permitting provision under the Natural Gas Act that allows developers to pay a fee — 1% of the project's estimated cost or $10 million, whichever is less — to enter a consolidated permitting process for qualifying projects. Under this process, federal agencies would have one year to complete their environmental and regulatory reviews. Any application still pending after that deadline would automatically be "deemed to be approved in perpetuity," as described in ENR's coverage.

The provision is targeted at natural gas facilities, pipelines, and related energy infrastructure — and its automatic approval mechanism for unresolved applications represents a significant departure from traditional environmental review processes. For contractors pursuing natural gas and fossil fuel energy projects, the provision reduces a major source of schedule risk. The bill also creates a "de-risking compensation program" for fossil fuel and nuclear projects that would compensate owners if federal action delays or forces cancellation of an under-construction project, with an enrollment fee of 5% of estimated cost and 1.5% annual premiums.

The Losses: IRA Clean Energy Credits Phase Out Ahead of Schedule

The most consequential negative for segments of the construction industry is the accelerated phase-out of Inflation Reduction Act clean energy tax credits. The IRA, enacted in 2022, created or expanded tax credits for wind, solar, battery storage, energy-efficient commercial buildings, and advanced manufacturing — credits that drove enormous construction investment from 2022 through 2025. The OBBBA terminates or substantially curtails most of these programs earlier than the IRA had scheduled.

Key deadlines affecting construction decisions include: the Section 179D Energy Efficient Commercial Buildings Deduction, which ends for projects beginning construction after June 30, 2026; the clean electricity investment credit (Section 48E) for wind and solar, which requires construction to begin by July 4, 2026, for projects to remain eligible (with an accelerated placed-in-service deadline of December 31, 2027 for projects beginning after that date); and the residential clean energy credit, which expired December 31, 2025. According to the Peterson Foundation's analysis, the elimination of IRA energy incentives produces $496 billion in projected ten-year budget savings — making it one of the largest single policy reversals in the bill.

For contractors who have built significant practices in solar installation, wind energy construction, or energy-efficient commercial building renovation, the OBBBA creates both an urgent near-term opportunity — racing to break ground on qualifying projects before the July 2026 deadline — and a longer-term question about what replaces that demand once the credits expire. The ENR analysis notes that renewable energy sector groups warned manufacturing plants would close and jobs would be lost as a result of the credit eliminations.

Workforce Provisions: Pell Grants and 529 Plans Extended to Trades

On the workforce side, the OBBBA contains two provisions that construction industry associations have long supported. First, the Pell Grant program is expanded to include students enrolled in workforce training programs — not just full-time college students — creating a new pathway for federally subsidized tuition support for construction apprenticeship and credentialing programs. Second, 529 education savings accounts are expanded to cover skilled trade training, allowing construction-bound workers and their families to use tax-deferred savings for trade school and apprenticeship costs.

AGC has been a vocal advocate for both provisions, noting that the construction workforce shortage — estimated at 349,000 open positions for 2026 alone — cannot be addressed without expanding the pipeline of workers entering the industry. The elimination of federal income taxes on overtime pay through 2028 (for amounts up to $12,500 per worker annually) is also meaningful in a sector where overtime is routine on complex projects with compressed schedules.

What Construction Firms Should Do Now

The OBBBA creates several time-sensitive planning opportunities. IRA credit-dependent projects — particularly solar and wind — need to break ground before July 4, 2026 to preserve eligibility for the clean electricity investment credit, per tax advisors at Warren Averett. The 179D commercial building efficiency deduction also ends for projects beginning after June 30, 2026. Firms should simultaneously capture full value of restored 100% bonus depreciation for 2025–2026 equipment purchases, review pass-through structures in light of the permanent 23% Section 199A deduction, and evaluate whether planned manufacturing facilities qualify for the new QPP deduction.

The OBBBA has uneven effects across construction market segments. Firms in fossil fuel, gas pipeline, and conventional industrial construction are broadly advantaged. Those with significant clean energy practices face a real market adjustment. And the industry as a whole gains meaningful permanent tax relief — at the cost of significant deficit expansion that will shape the federal fiscal environment for years to come.

Sources

Engineering News-Record — House Passes Big Beautiful Bill With Key Provisions for Construction (May 22, 2025)
Grassi Advisors — The One Big Beautiful Bill: What It Means for the Construction Industry (July 2025)
Warren Averett — The Construction Industry's New Tax Landscape Explained (November 2025)
Peter G. Peterson Foundation — Energy Tax Policy Under the OBBBA (March 2026)
CLA — What Contractors Need to Know About the One Big Beautiful Bill Act (July 2025)
Federal Budget IQ — Trump Signs One Big Beautiful Bill Into Law (July 2025)