The One Big Beautiful Bill Act reshaped how construction companies can claim deductions, expense assets, and plan for growth. Here is what South Texas merit shop contractors need to know one year in-and what to do before December 31.

Key Takeaways

• Under OBBBA, 100% bonus depreciation is permanently restored for qualifying equipment, heavy machinery, and business vehicles acquired and placed in service after January 19, 2025. Both new and used assets qualify.
• The section 179 deduction limit roughly doubled to a $2.5 million base cap with a phase-out threshold starting at $4 million, inflation-adjusted each tax year (2026 indexed figures: $2,560,000 cap, $4,090,000 phase-out).
• Restored EBITDA-based interest deduction rules under Section 163(j), the permanent 20% qualified business income deduction, and expanded accounting method alternatives together deliver significant changes for capital-intensive contractors.
• Workforce incentives-expanded Pell Grants, 529 plan funds for trades education, and a temporary overtime deduction-help address the construction workforce gap while improving after-tax labor cost.
• This article provides general information, not tax advice. Coordinate every move with your construction CPA, legal counsel, bank, and surety before changing strategy.

Why Construction Tax Planning Matters in Mid-2026

If you are searching for construction tax deductions, the key opportunities under the OBBBA are permanent 100% bonus depreciation for qualifying equipment and vehicles, a higher Section 179 limit, restored interest deduction rules, workforce incentives, and the continued ability to deduct ordinary and necessary business expenses to reduce taxable income. This article provides South Texas commercial contractors, subcontractors, suppliers, and other merit shop construction professionals with a clear list of what is available right now, what has changed under the new law, and which deadlines are approaching.

The new law was signed July 4, 2025. One year later, advisors across the industry are urging contractors to reassess their 2025–2026 positions because these tax rules affect cash flow, equipment purchase timing, compliance, workforce planning, and even bonding capacity. Several incentives apply only to property placed in service or projects under construction during 2026, including full first-year expensing and certain clean-energy credits with mid-2026 start-of-construction deadlines. Below, we walk through the OBBBA provisions that matter most to merit shop contractors in San Antonio, Corpus Christi, Laredo, the Rio Grande Valley, and Midland-Odessa, from bonus depreciation, Section 179 expensing, interest deduction changes, and accounting methods to Pell Grant and 529-related workforce incentives, estate tax planning, and practical year-end tax actions.

Big Picture: How OBBBA Changed Construction Tax Deductions

OBBBA reversed phase-outs from the prior jobs act era and added new incentives aimed at capital-intensive industries. Construction businesses can reduce their taxable income by deducting ordinary and necessary expenses-and now they can do so more aggressively. Key write-offs for construction businesses include materials and supplies (fully deductible), labor costs including wages and benefits, and equipment depreciation. Office and administrative expenses, including software subscriptions and bookkeeping costs, licenses, permits, and professional certifications, are also typically deductible, as are insurance premiums, including general liability and workers’ compensation. Travel and lodging expenses for business purposes remain deductible for construction professionals, and independent contractors can deduct all ordinary and necessary expenses. Note that unreimbursed employee expenses are not deductible after 2018.

Core OBBBA changes at a glance:

• Permanent 100% bonus depreciation for qualifying property
• Higher section 179 limits
• EBITDA-based Section 163(j) interest deduction
• Permanent 20% qualified business income deduction for pass-throughs
• Expanded exemptions from percentage-of-completion method
• Estate tax exemption reset to $15 million per person
• Workforce provisions (Pell, 529, overtime deduction)

IRS guidance-particularly Notice 2026-11 under IRS section 168(k)-confirms the framework and affects how taxpayers evaluate deductions under federal law. State conformity may differ; this discussion focuses on federal rules.

100% Bonus Depreciation: The Centerpiece Deduction for Heavy Equipment

Bonus depreciation is an additional first-year depreciation deduction that lets you immediately deduct the full cost of qualifying depreciable property once it is paid for or financed and placed in service, rather than spreading the expense over multiple years. Under the new law, bonus depreciation allows a 100% deduction for qualified purchases in 2025 and beyond-permanently-for property acquired and placed in service after January 19, 2025.

Used equipment qualifies for bonus depreciation if it is first used by the buyer (“new to your business”) and not purchased from a related party. New or used equipment qualifies if it is new to your business and meets other requirements.

Example: A construction company purchases a crane for $750,000 in October 2026. If acquired after January 19, 2025, and placed in service before December 31, 2026, the firm takes the full $750,000 as a depreciation deduction that tax year-dramatically lowering taxable income and freeing cash flow for growth.

What Counts as Qualified Property for Bonus Depreciation?

Not every asset qualifies. Bonus depreciation applies to assets with a recovery period of 20 years or less that are tangible personal property used in the business. Qualifying property for contractors includes:

• Heavy equipment (excavators, dozers, cranes), heavy machinery, and construction machinery
• Computer software used for project management
• Field technology (GPS, laser scanners, drones used primarily for business)
• Qualified improvement property to nonresidential real property

Land, most buildings, and structural components generally do not qualify. However, certain improvements to nonresidential real property may qualify. Equipment and tools can be either immediately deductible or depreciated over time depending on the election. Assets must be delivered, installed, and ready for use-placed in service during the tax year claimed-not merely ordered.

Section 179 Expensing: Pairing With Bonus Depreciation

Section 179 lets you expense the full cost of qualifying property on an asset-by-asset basis. The Section 179 deduction limit is $2.5 million for 2025 (indexed to $2,560,000 for 2026), with a phaseout threshold beginning at $4,090,000. Section 179 applies to equipment and machinery purchases and requires the property be placed in service during the tax year. Tools and equipment costs can be fully deducted in the year of purchase under this election.

The two methods interact: section 179 is applied first to selected business assets, then bonus depreciation deductions cover remaining basis by class. Most businesses use section 179 for specific items-service trucks, office equipment, technology-and leave large fleets to bonus depreciation to avoid hitting the deduction limit. Financing equipment does not prevent claiming the deduction if structured as a purchase.

Business Vehicles and Heavy Trucks

Vehicle expenses related to business use are generally deductible for construction companies. Business vehicles with a GVWR over 6,000 pounds qualify for more generous depreciation caps. Contractors can combine section 179 and bonus depreciation on a heavy-duty pickup purchased and placed in service during 2026. Section 179 requires more than 50% business use; qualifying property must be used more than 50% for business. Construction workers can deduct mileage for job-related travel, and steel-toed boots and hard hats are tax-deductible work clothing. Keep detailed mileage logs to substantiate every claim.

Section 163(j) Interest Deduction Relief

Section 163(j) limits how much business interest expense you can deduct. OBBBA restored the EBITDA-based calculation for tax years beginning after December 31, 2024-depreciation and amortization are added back to adjusted taxable income, raising the ceiling for deductible interest. For a firm with $1,000,000 in income and $450,000 in depreciation, ATI rises to $1,450,000, and 30% of that ($435,000) is deductible interest-a significant tax benefit over prior EBIT-based rules. Disallowed interest can be carried forward. CFOs should re-run projections to see whether interest that occurred prior to this change and was limited can now be claimed, and whether it is smarter to finance equipment or pay cash.

Permanent 20% Qualified Business Income Deduction for Pass-Throughs

Many South Texas contractors operate as S corporations or partnerships. OBBBA made the 20% qualified business income deduction permanent at the shareholder level and owner level for these pass-through entities. Combined with larger bonus depreciation rules, this can create planning tradeoffs: aggressive expensing lowers current taxable income but may also reduce the QBI base. Owners should model the choice of entity (C corporation vs. pass-through) and the compensation mix for their specific situation using side-by-side projections over 3–5 years.

Accounting Methods: Percentage-of-Completion vs. Expanded Alternatives

OBBBA expanded exemptions from percentage-of-completion. Multiunit residential projects now qualify for completed-contract or other non-PCM methods regardless of contractor size, allowing income deferral. Commercial and industrial contracts may still require PCM, but contractors with mixed portfolios should review each contract. Method changes require formal elections (often Form 3115) and should be coordinated ahead of year-end close and bonding reviews. Aligning taxable income with actual cash receipts is the intended benefit-especially for small businesses experiencing rapid growth.

Estate, Succession, and the $15 Million Exemption

OBBBA reinstated the federal lifetime estate and gift tax exemption at up to $15 million per person effective January 1, 2026-up to $30 million for a married couple. For family-owned construction firms, this allows tax-efficient transfers of company interests, real property, and equipment-holding entities. Coordinate succession planning among your CPA, estate attorney, and surety broker. Consider minority interest gifts, recapitalizations, and buy-sell agreements. Early planning in 2026 offers more flexibility than waiting. This kind of plan matters as much as any single tax deduction.

Workforce Incentives: Using Tax Tools to Tackle the Workforce Gap

OBBBA addresses the construction workforce gap through several provisions:

• Expanded Pell Grant eligibility covers more career and technical education, supporting apprenticeship programs and merit shop training
• 529 plan funds can now pay for qualified skilled-trades education, giving employees a tax-advantaged way to fund entry into the trade
• A temporary above-the-line overtime deduction-up to $12,500 for individuals, $25,000 for married filers-lowers taxable income for high-hours field personnel (confirm sunset date with your advisor)

Align these incentives with your own apprenticeship programs and recruiting to build a sustainable workforce pipeline rather than relying solely on wage increases to overcome labor constraints. Materials and supplies for jobs remain fully deductible, and labor costs, including wages and benefits for employees, are deductible, making workforce investment doubly advantageous.

Practical Year-End 2026 Actions: Modeling, Timing, and Documentation

Move from reading to acting before December 31. Build side-by-side before-and-after tax projections with a construction-focused tax professional, modeling different mixes of Section 179, bonus depreciation, Section 163(j) interest levels, and accounting methods. Recent tax cuts make that comparison especially important when timing purchases and deductions. Order heavy equipment and business vehicles early enough to ensure delivery, installation, and testing before year-end. Review entity structure, owner compensation, and distribution policies. Key requirements for claiming deductions include accurate documentation and separation of business and personal expenses-maintain fixed-asset schedules, acquisition dates, contracts, and usage logs.

Cash Flow, Working Capital, and Bonding Implications

Larger first-year deductions reduce current tax payments, freeing cash flow for equipment purchases, technology, or hiring. But they also reduce reported book earnings and equity. For construction, where retainage and underbillings already create profit-to-cash timing gaps, immediate expensing should be evaluated alongside WIP schedules. Surety underwriters evaluate construction bond capacity using working capital, equity, and profit fade. Aggressive expensing works in your favor if you communicate it with pro forma adjustments. Maintain disciplined monthly WIP reports that feed a rolling 13-week cash forecast, and share them with lenders and surety partners.

Deadlines and Transition Rules Contractors Cannot Ignore

The biggest lost opportunities in 2026 will come from missing placed-in-service dates. Property must be acquired after January 19, 2025 and placed in service within the tax year. Property under binding contract before January 20, 2025 may be subject to prior-law percentages even if delivered later. Some clean-energy credits require projects to begin construction by mid-2026. Build an internal 2026 tax calendar tracking purchase orders, delivery dates, and filing deadlines. Industry-specific tax incentives may be available for construction companies building energy-efficient projects-don’t miss the window.

How ABC South Texas Can Support Your OBBBA Tax Strategy

ABC South Texas does not provide individualized tax advice or prepare returns. We serve as an educational and networking hub, connecting members with construction-savvy CPAs, attorneys, and bond agents who understand South Texas commercial and industrial work. Our training, peer roundtables, and apprenticeship programs intersect directly with the workforce and tax topics above. This article provides general information only-contractors should consult their own tax advisors before acting on any strategy described.

Reader Checklist: Steps to Take Before Year-End 2026

• Schedule a planning session with a construction-focused CPA to run 2026–2027 projections
• Inventory all potential 2026 equipment purchases and confirm which assets qualify as qualified property for bonus depreciation and Section 179
• Re-run Section 163(j) interest modeling with restored EBITDA-based ATI
• Evaluate whether multiunit residential contracts can use completed-contract accounting
• Map workforce strategies: apprenticeship programs, 529 funds, Pell Grants, overtime deduction eligibility
• Share updated WIP schedules and pro forma statements with banks and sureties reflecting planned bonus depreciation and section 179 elections to keep construction bond capacity aligned with growth
• Review entity structure, succession plan, and estate exemption usage with legal counsel

Contractors who proactively model projections, time equipment purchases, and review entity and succession structures in 2026 capture savings that passive competitors leave on the table.

Frequently Asked Questions

Does 100% bonus depreciation apply to both new and used construction equipment?

Yes. Under OBBBA, bonus depreciation can be claimed on both new and used equipment, as long as the asset is “new to your business,” property acquired after January 19, 2025, and not purchased from a related party or previously used by your own company. Used equipment bought from an unrelated dealer generally qualifies. Keep purchase contracts and dealer documentation showing the acquisition date for audit protection.

Can I still take bonus depreciation if I also elect Section 179 on the same piece of equipment?

Yes. Section 179 is applied first up to the elected amount and the annual deduction limit; any remaining basis can be eligible for 100% bonus depreciation if it meets the qualified property rules. Strategic planning is required because using Section 179 on one asset affects how much remains under the cap for other equipment purchases. Run sample calculations with your tax professional to determine the best approach for each asset class.

How do these federal tax changes interact with Texas taxes?

Texas does not impose a traditional income tax on business profits, so OBBBA deductions directly affect federal liability. Texas does have a franchise (margin) tax with its own rules. Depreciation can indirectly affect the margin base, but it is not a one-to-one match for federal depreciation rules. Multi-state contractors should confirm with their advisors how federal expensing choices affect each state’s calculations.

Are there special OBBBA tax breaks for clean-energy or high-efficiency building projects?

OBBBA interacts with existing energy-efficiency credits, some of which offer more favorable rates if projects begin construction by specific dates around mid-2026. Eligibility depends on project type, ownership structure, and documentation. Specialty trades such as HVAC and electrical may have the most direct opportunities-ask your advisor about project-specific energy modeling or certification to support credit claims.

What documentation should my construction firm keep to defend these deductions?

Maintain detailed fixed-asset schedules with acquisition dates, placed-in-service dates, cost allocations, and election records. Keep contracts, invoices, delivery receipts, and installation reports for major equipment, along with mileage logs for business vehicles. Retain WIP schedules, accounting-method election statements, and internal memos-these files also support discussions with banks and surety companies during construction bond renewal or underwriting. Seek qualified tax advice for your specific situation.