Blueprints for Success: Navigating the TCJA Sunset Provisions and New Tax Incentives for the Construction Industry (Part 1)

Construction business owners are navigating a pivotal year of potential tax changes and fiscal uncertainty. The expiration of key provisions under the Tax Cuts and Jobs Act (TCJA) of 2017, coupled with a shifting political landscape, is set to bring significant changes that directly impact contractors, subcontractors, and construction firms. While the TCJA stimulated economic growth through tax cuts for corporations and pass-through entities, many of its provisions included sunset clauses set to expire in 2025. New legislation recently passed by the U.S. House of Representatives, now awaiting Senate approval, seeks to make these provisions permanent and introduce additional tax incentives tailored to support continued growth and investment. For the construction industry, this could mean substantial changes in areas such as Individual Tax Rates, Standard Deductions, Corporate Tax Rates, Qualified Business Income (QBI) Deductions, Alternative Minimum Taxes (AMT), and Bonus Depreciation. Now is the time for construction businesses to proactively evaluate how these developments may affect long-term profitability, project financing, and entity structure decisions.

Individual Tax Rates

Individual tax rates significantly impact construction business owners operating as sole proprietors or through pass-through entities, such as S-Corporations and Limited Liability Companies (LLCs). The TCJA temporarily reduced the top marginal tax rate from 39.6 percent to 37 percent, effective from 2018 through 2025. The new legislation would make these TCJA provisions permanent, locking in the top individual income tax rate at 37 percent and preventing the implementation of an additional “millionaire tax” on high earners.

Standard Deductions

The nearly doubled standard deduction under the TCJA simplified filings for many small construction business owners. The new legislation would make these provisions permanent, preserving the higher standard deduction. Starting in the 2026 tax year, the standard deduction would be set at $16,000 for single filers, $24,000 for heads of household, and $32,000 for married couples, with annual inflation adjustments. Therefore, small-business owners and sole proprietors who typically take the standard deduction will continue to benefit from less complex filing requirements, lower taxable income, and fewer documentation demands, freeing up more time and resources to reinvest in their businesses.

Corporate Tax Rates

The TCJA permanently reduced the corporate tax rate from a tiered structure up to 35 percent to a flat 21 percent, benefiting C-Corporations in the construction industry by leaving more funds for reinvestment in heavy equipment, fleet expansion, or labor costs. The new legislation maintains that 21 percent corporate rate and ensures predictability in planning capital investments, whether for heavy equipment, fleet expansion, or labor costs.

Qualified Business Income (QBI) Deduction

The QBI deduction, which allows eligible pass-through construction businesses to deduct up to 20 percent of their qualified business income, has been a game-changer. Many contractors have relied on this provision to improve cash flow by reinvesting in operations, purchasing new equipment, or funding capital projects. The newly passed legislation in the House would make this deduction permanent and increases it from 20 percent to 23 percent. The Senate, however, proposes keeping the deduction at 20 percent. This provision continues to reduce taxable income for eligible pass-through entities, including sole proprietorships, partnerships, and S-Corporations.

Alternative Minimum Taxes (AMT)

Before the TCJA, the AMT complicated tax planning for many construction business owners by limiting deductions. The elimination of the corporate AMT and the increased individual AMT exemption thresholds under the TCJA have been favorable for the industry. The new legislation builds on that relief by permanently extending the increased exemption amounts and higher income thresholds at which those exemptions begin to phase out. These changes are designed to reduce the number of taxpayers subject to the AMT and provide long-term certainty for effective tax planning.

Bonus Depreciation

Construction businesses have significantly benefited from the 100 percent bonus depreciation, which allows for the immediate deduction of equipment costs, such as machinery, vehicles, and technology. This provision has incentivized construction firms to invest in new tools and resources, driving productivity and growth. However, a phase-down began in 2023, with the deduction rate set to decrease annually until it reaches zero percent by 2027. The new legislation passed by the House reverses this trajectory by extending 100 percent bonus depreciation for an additional five years. In contrast, the Senate plan removes the time limit, permanently restoring 100 percent bonus depreciation for qualifying assets acquired after January 19, 2025. These changes provide contractors with more time—and, in the Senate’s case, long-term certainty—to strategically invest in capital improvements while continuing to benefit from immediate tax deductions.

Current TCJA Legislative Outlook & Fiscal Impact

In April 2025, the House narrowly approved a Republican-sponsored budget resolution that set the stage for legislation to extend or make permanent important TCJA tax provisions. On May 22, 2025, it passed the "One Big Beautiful Bill," a comprehensive tax and spending package that built on those provisions. The legislation also included targeted tax relief, such as exemptions for tips, overtime pay, car loan interest, and Social Security benefits. Furthermore, it included cuts to Medicare and SNAP funding while boosting resources for border security and defense.

The bill is now with the Senate, where lawmakers will use the budget reconciliation process to pass it with a simple majority, avoiding the threat of a filibuster. The Congressional Budget Office estimates it would increase the federal deficit by roughly $2.8 to $3.8 trillion over the next decade, factoring in reduced revenues and higher interest costs.

Tax Planning Strategies for Construction Businesses

As tax laws continue to evolve, construction businesses must stay proactive to safeguard their bottom line. Here are key strategies to help you navigate upcoming changes with confidence:

1. Engage Specialized Tax Professionals: Partner with experts who understand the complexities of construction, including long-term contracts, cash flow timing, and project-based income.

2. Reevaluate Your Business Structure: Reassess whether your current structure—sole proprietorship, partnership, LLC, or corporation—still aligns with your financial goals and the shifting tax landscape.

3. Stay Informed and Agile: Follow legislative developments closely to adapt your strategy accordingly.

   
   

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