Recent legislative updates under the “One Big Beautiful Bill Act” signed into law on July 4, 2025, have introduced sweeping tax reforms aimed at stimulating investment in construction, real estate development, and economically distressed communities. These reforms expand and extend many tax incentives and introduce some new deductions as well. While questions remain about overall economic impact, the provisions of the new law are overall tax-friendly for construction and real estate businesses and their stakeholders. We have summarized some of the most notable provisions below.
Expanded Exception for Residential Construction Contracts
Section 460(e) expands the exception to the percentage-of-completion accounting method to now include residential construction contracts, not just home construction contracts. This provides greater flexibility in income recognition for builders and contractors. The change applies to contracts entered in taxable years beginning after July 4, 2025.
Enhanced Expensing for Depreciable Business Assets
The Section 179 expensing limit has been increased substantially to $2,500,000, with a phase-out threshold of $4,000,000. This allows businesses to fully deduct the cost of qualifying property in the year placed in service, effective for taxable years beginning after December 31, 2024.
New 100% Depreciation Deduction for Qualified Production Property
The new law allows taxpayers to elect 100% expensing of expenditures for nonresidential real property that meets the criteria for qualified production property used in manufacturing, agriculture, chemical production, or refining. This provision applies to eligible property where construction begins after January 1, 2025, and before January 1, 2029. Additionally, the property must be placed in service before January 1, 2031. While additional guidance about this new category is expected soon, it offers significant upfront tax relief for industrial capital expenditures.
Return of 100% Bonus Depreciation
The bill also revives 100% bonus depreciation for qualified assets placed in service after January 19, 2025, which had been scheduled to phase down under prior law and makes the deduction permanent. This is not only a welcome provision for real estate developers and owners but also provides a much-needed degree of certainty for business owners.
This change provides a strong incentive for businesses to invest in equipment, vehicles, and certain real property improvements sooner rather than later to maximize the immediate deduction.
Qualified Business Income Deduction (QBI)
The Section 199A QBI deduction is now permanent at the current 20% rate. The phase-in thresholds have been expanded to $75,000 for single filers and $150,000 for joint filers, broadening access without altering the deduction’s mechanics.
Business Interest Expense Limitation
The favorable EBITDA-based calculation of the business interest deduction limit is permanently reinstated for tax years beginning in 2025. The law provides specific rules for how the business interest expense limitation interacts with other tax provisions that capitalize interest.
Permanent Enhancements to the Low-Income Housing Tax Credit
The Low-Income Housing Tax Credit (LIHTC) is strengthened by:
- Permanently increasing the state credit allocation cap to 12%
- Reducing the tax-exempt bond financing requirement from 50% to 25% (under specific conditions)
Effective for buildings placed in service after December 31, 2025, these changes are expected to boost affordable housing development nationwide.
Permanent Extension of the New Markets Tax Credit
The New Markets Tax Credit (NMTC) program is made permanent, allowing continued support for community development and real estate revitalization in underserved areas. This extension applies to calendar years beginning after December 31, 2025.
Updates to Qualified Opportunity Zones
The Qualified Opportunity Zone (QOZ) incentive is expanded and made permanent within the tax code. The changes aim to spur additional investment in economically disadvantaged areas (including rural areas), while also adding an element of accountability with new reporting requirements.
- Census tracts eligible for QOZ investment are now determined every 10 years, starting on July 1, 2026
- Census tracts in Puerto Rico no longer automatically qualify as eligible QOZ’s
- Eligibility criteria for low-income communities are tightened
- Newly designated rural opportunity zones offer additional incentives for eligible investments
- Annual reporting requirements are imposed on QOZ funds and their lower-tier businesses
- Annual reports to be made available to the general public with respect to investments made in qualified opportunity zones
Termination of Incentives for Energy Efficient Commercial Buildings & Homes
The Section 179D deduction for energy efficient commercial buildings, and the Section 45L credit for energy efficient homes, have both been eliminated for projects, the construction of which begins after June 30, 2026. In addition, solar energy property, the construction of which begins after December 31, 2024, is no longer classified as five-year property, making it ineligible for accelerated depreciation. These provisions, along with several others, signal a shift in federal policy with respect to “green” building initiatives moving forward.
Tax Exclusion for Rural & Agricultural Real Estate Loans
Qualified lenders can exclude from their gross income 25% of their interest income on loans secured by rural or agricultural real estate. This benefit applies to loans made after the enactment date, promoting investment in rural infrastructure and land development.
Restoration of Taxable REIT Subsidiary Asset Test
The 20% limit on the value of taxable REIT subsidiary (TRS) assets within a REIT’s overall portfolio is increased to 25%, effective for taxable years beginning after December 31, 2025. This provision adds flexibility to REIT structures with respect to REIT-qualified assets and non-real estate businesses.
Looking Ahead
The “One Big Beautiful Bill Act” introduces a robust combination of tax incentives and regulatory changes designed to fuel investment across the construction and real estate industries, including in underserved communities. While many provisions offer immediate or expanded benefits—such as bonus depreciation, expensing thresholds, and tax credit enhancements—others roll back existing incentives and introduce tighter oversight and compliance.
Taxpayers and advisors in the construction & real estate industries should evaluate how these provisions align with strategic planning, capital investment, and project financing to minimize tax liability while ensuring compliance with the new law.
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This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
