News & Press

As Published in CIC Construction News – Nov ’25

By Phillip Ross, CPA, CGMA, Anchin
Partner & Co-Leader, Construction Industry Group

As 2025 draws to a close, construction companies face a valuable opportunity to strengthen their financial position through proactive year-end tax planning. Strategic attention to depreciation, unamortized research and experimentation (R&E) costs, accounting method elections, and federal incentives can significantly enhance cash flow and position firms for success in 2026.

The construction industry continues to evolve amid shifting tax laws, economic pressures, and sustainability initiatives. For contractors, architecture firms and engineering firms, year-end presents a critical window to evaluate their tax posture and implement strategies that capture available deductions, credits, and incentives. Thoughtful planning now can help improve liquidity and cash flow for the future.

The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, permanently reinstated 100% bonus depreciation for qualifying assets acquired and placed in service after January 19, 2025. For assets placed in service before that date, the prior 40% rate still applies. This reinstatement allows firms to immediately deduct the full cost of eligible equipment, vehicles, and improvements, resulting in significant tax savings that will improve cash flow. Under OBBBA, the maximum Section 179 deduction for 2025 increased to $2.5 million, with a phase-out threshold beginning at $4 million of qualifying property. This expanded limit allows more businesses to expense higher amounts of their fixed asset acquisitions rather than capitalize them. Section 179 is also allowed by most states, whereas many states, including New York, do not allow bonus depreciation. Construction firms that own real estate or complete new buildings or renovations should consider cost segregation studies to reclassify components of buildings (such as electrical, HVAC, or finishes) into shorter-lived asset classes. Accelerating depreciation in this way enhances near-term deductions. These qualifying assets must be placed in service by December 31 to be eligible.

Another significant development from the OBBBA for year-end planning is permanently restoring full expensing for domestic Research and Experimentation (R&E) costs for tax years beginning in 2025. This change reverses the Tax Cuts and Jobs Act’s amortization requirement and allows taxpayers to deduct domestic R&E expenditures in the year incurred. Additionally, OBBBA provides transition relief allowing companies to accelerate the deductions for unamortized domestic R&E costs paid or incurred in 2022 through 2024. Depending on the size of the company, some may be able to amend prior tax returns to deduct these amounts. In contrast, the others would be able to amortize the balance over one or two years (or continue their current amortization schedules). Companies should evaluate these options to determine which one is best for their current and future tax planning.

Sustainability and innovation remain central to tax planning in the construction industry, and several key incentives can deliver meaningful benefits when paired with thoughtful expense-side planning. While the OBBBA changed the expensing rules for R&E expenses, the Research and Development (R&D) tax credit remains available and continues to reward companies that invest in innovative design, engineering, and construction methods that enhance efficiency, materials, or sustainability. Similarly, the Energy-Efficient Commercial Building Deduction (IRC §179D) can provide up to $5.36 per square foot for qualifying energy-efficient building projects when prevailing wage and apprenticeship requirements are met under the enhanced Inflation Reduction Act rules. Contractors and design professionals should note that §179D will no longer apply to projects beginning after June 30, 2026, making now an optimal time to evaluate and schedule qualifying improvements. Together, these incentives support sustainable, high-performance building practices while helping firms manage taxable income and strengthen overall tax efficiency.

Beyond specific incentives, several broader strategies can further enhance year-end efficiency. Construction firms should revisit their accounting methods for long-term contracts and potential deductibility of prepaid expenses to identify opportunities to defer income or accelerate deductions.

As the construction industry navigates new rules and renewed incentives, effective year-end planning has never been more important. By taking a comprehensive approach, evaluating asset purchases under OBBBA, reassessing R&E amortization, leveraging available credits and deductions, and refining accounting methods, construction firms can significantly improve liquidity and minimize their 2025 tax burden. Firms that act now will enter 2026 better positioned to pursue new projects, invest in innovation, and compete in an increasingly complex market.