Contractor groups are pleased with the new $3.4 trillion federal budget legislation signed July 4 by President Donald Trump, touting tax relief and other measures they say will benefit the construction industry.
“Passage of this bill ensures our nation does not default on its debt and ensures most construction companies will not face a 20% tax increase – which would have been a higher rate than before the 2017 Tax Cuts and Jobs Act (TCJA) passed,” reports the Associated General Contractors of America.
“This new law provides long-overdue tax certainty that empowers construction businesses to invest in their workforce, expand operations and keep America building,” says the Associated Builders and Contractors.
Construction workers will also likely appreciate the elimination of federal income taxes on overtime pay, and equipment purchases will be eligible for heftier tax breaks than in the past.
Though the legislation met overwhelming support from contractor groups, they didn’t get everything they wanted, particularly when it comes to a new revenue stream for the nation’s Highway Trust Fund and keeping tax breaks for clean-energy construction projects.
Here’s a look at how construction contractors can benefit from the new legislation and how they might not.
The Benefits
For construction equipment, the big news is the permanent restoration of 100% bonus depreciation. The percentage of depreciation on new and used equipment purchases had been declining incrementally over the past three years. It was set to drop to 40% for 2025 and phase out until its scheduled end of January 1, 2027. The new law brings it back to the 100% provision set in the 2017 tax bill.
Other benefits for construction equipment, according to AGC, include raising the Section 179 expensing cap on new and used equipment purchases to $2.5 million, with a $4 million phaseout, as well as additional write-offs for machinery, trucks and software. The change raises the 2025 cap from $1.25 million and the phaseout from $3.13 million.
The law also permanently extends 100% research-and-development expensing for full deductions of the cost of new and used equipment and technology like drones and building information modeling (BIM), AGC says.
One of the biggest concerns for the groups was a 20% tax increase for small and medium-sized construction companies set to take effect in 2026. The new budget prevents that by extending the 199A Qualified Business Income Deduction. “Solidifying the Section 199A deduction will provide tax certainty for pass-through businesses, allowing contractors to reinvest in their operations and workforce without fear of future tax hikes,” ABC says.
For family-owned construction companies, the new law increases and makes permanent the $15 million estate-tax exemption, as well as indexes it to inflation.
The budget also exempts overtime pay from federal income taxes and expands 529 education savings accounts to cover career and technical education for skilled trades, ABC notes. It expands Pell Grants to short-term workforce programs, AGC says.
AGC also points out the following other benefits:
- The state and local tax (SALT) deduction cap increases temporarily to $40,000 and goes up by 1% a year until 2030. “This will provide additional tax relief for companies operating in states and localities that have high taxes,” AGC says. In 2030, however, it reverts to $10,000.
- Provides over $46 billion for a border wall and other infrastructure for it like access roads.
- Exempts multi-family-residential contractors from percentage-of-completion accounting method requirements. This allows builders to recognize revenue and taxes when a project is completed rather than at the end of each year, AGC says.
The Concerns
The big disappointment in the bill for the groups was the lack of annual user fees for electric and hybrid vehicles to bring in more revenue for the Highway Trust Fund, which is primarily covered by federal excise taxes on gasoline and diesel fuel. The measure was in the House version but didn’t survive the Senate.
The fee to help shoulder the cost for the upkeep of the nation’s roads and bridges, however, did seem to have strong Republican support, so it could come back in future legislation.
“While exclusion of the electric and hybrid vehicle fees is disappointing, the overwhelming support seen for them among most GOP members of Congress is encouraging,” says the American Road and Transportation Builders Association. “It marks the largest demonstration of support for an ‘all highway users pay model’ since the dialogue on alternative fuel vehicles began nearly two decades ago.”
ARTBA says it will continue to advocate for the user fees.
AGC pointed out other provisions in the new budget that could impact the construction industry:
- Permanently extends the limitation on claiming excess business losses in a given year. Those losses must now be spread over multiple years.
- Phases out tax incentives for clean-energy upgrades to commercial and multifamily buildings.
- Phases out tax credits for retrofitting and constructing manufacturing plants for renewable-energy components such as solar panels and battery cells.
- Phases out tax credits for construction and upgrades of renewable-energy facilities, including wind, solar and hydrogen.
- Rescinds funding approved in the 2022 Inflation Reduction Act for incentives for low-carbon construction materials.
According to an article by The Tax Adviser, a monthly publication of the American Institute of CPAs, the budget also phases out these tax credits:
- Previously owned clean vehicle credit terminates after Sept. 30, 2025.
- Clean vehicle credit terminates for vehicles acquired after Sept. 30, 2025.
- Qualified commercial clean vehicle credit terminates after Sept. 30, 2025.
Alternative fuel vehicle refueling credit terminates after June 30, 2026.
