Article | by Mina Liang, Janet Virgen, Dan Miller and Vandana Jain

The OBBBA, signed into law on July 4, 2025, introduces several significant tax law changes affecting numerous industries, including construction and manufacturing. Below is a summary of the key tax provisions to impact these sectors:

1. Permanent 100% Bonus Depreciation

The OBBBA permanently reinstates 100% bonus depreciation under IRC §168(k) for qualifying property such as heavy equipment, vehicles, software, machinery, and production-line upgrades, placed in service after January 19, 2025.

2. Increased Dollar Limitations on Section 179 Deduction  

Effective for tax years beginning after December 31, 2024, the OBBBA increases the maximum Section 179 deduction to $2.5 million, with a phase-out threshold beginning at $4 million, being fully phased out at $6.5 million in total purchases.

3. Qualified Production Property (QPP) Incentive  

The OBBBA introduces a full 100% deduction for Qualified Production Property — this refers to newly built non-residential real estate used directly in manufacturing, production, or refining tangible goods.

To qualify: 

• Construction must begin after January 19, 2025, and before January 1, 2029.
• The property must be placed in service before January 1, 2031.
• The deduction covers new buildings and improvements but explicitly excludes any portion used for offices, administrative work, lodging, parking, sales, and other non-qualified properties.

These enhanced depreciation provisions enable construction firms and manufacturers to immediately expense qualifying assets, thereby boosting cash flow, optimizing tax planning, and simplifying long-term depreciation strategies.

4. Percentage-of-Completion Method for Long Term Construction Contracts 

The OBBBA makes a significant change to the exemption from the Percentage-of-Completion Method (PCM) for long-term construction contracts.

• The OBBBA expands the exemption from the PCM for residential construction contracts by amending IRC §460(e) to allow the exception from the PCM to apply to contracts for the construction of residential buildings with more than four dwelling units—such as apartment complexes, condominiums, senior living facilities, and similar developments. The new law provides that the exception applies to “residential construction contracts,” which are defined to include contracts for the construction of dwelling units, regardless of the number of units in the building, as long as the other requirements are met.
• Additionally, for non-home residential construction contracts, the OBBBA introduces a “3-year completion test.” This means that to qualify for PCM exemption, the contract must be estimated to be completed within three years of the contract’s commencement date. This is an expansion from the previous rule, which generally required a two-year completion estimate for non-home construction contracts.

5. Expanded Opportunity Zones (OZ) and Rural Development Credits

• The OBBBA extends the Opportunity Zone program indefinitely, allowing for continued tax incentives for investments in designated low-income areas.
• It introduces Qualified Rural Opportunity Funds (QROFs), offering increased tax benefits for investments in rural areas, including a 30% basis step-up after five years and a reduced substantial improvement requirement in excess of 50% of basis.
• Construction companies operating in OZs or investing in QROFs may benefit from increased project volume and favorable tax treatment, including potential capital gains deferrals and exclusions.

Check out our in-depth blog post exploring the impact of the OBBB Act on Opportunity Zones.  https://gmco.com/opportunity-zones-2-0-what-the-one-big-beautiful-bill-act-means-for- investors/ 

6. Research and Experimental (R&E) Expenditures

• The OBBBA permanently reinstates the immediate expensing of domestic research and experimental expenditures for taxable years after December 31, 2024, including software development.
• Small businesses with average annual gross receipts of $31 million or less over the three years preceding the tax year beginning after December 31, 2024, can elect to retroactively amend their tax returns for 2022, 2023, and 2024 to fully expense domestic research and experimental (R&E) costs.
• Foreign R&E expenses remain subject to capitalization and a 15-year amortization period.

Check out our in-depth blog post exploring the impact of the OBBBA on Research and Experimental (R&E) Expenditures. https://gmco.com/treatment-of-research-costs-under-the-one-big-beautiful-bill-act-obbb-act-what-it-means-for-taxpayers/ 

7. Limitation on Business Interest Deduction

The OBBBA makes several significant changes to section 163(j):

• The OBBBA restores the add-back for depreciation, amortization, and depletion in the calculation of ATI (i.e., using EBITDA rather than EBIT), that expired after 2021, effective for tax years beginning after December 31, 2024.  This new provision will potentially increase the amount of interest expense businesses can deduct, including amounts that were previously disallowed and carried forward under the old Section 163(j) limitation.
• The business interest limitation under section 163(j) applies before any interest capitalization provisions. Disallowed interest is not subject to future capitalization. This clarifies the order of application and prevents double limitation or capitalization of disallowed interest.
• The OBBBA expanded floor plan financing interest expense, previously limited to certain motor vehicles, to include certain trailers and campers designed for temporary living quarters for recreational, camping, or seasonal use and designed to be towed by, or affixed to, a motor vehicle.

We are Keeping an Eye on the Changes?

At Geffen Mesher, we are actively tracking the implementation of the OBBBA. This article does not cover all the provisions included in the OBBBA. Our team is diving into the details, evaluating how the legislation will impact our clients, and will share more information soon. Geffen Mesher’s team is available to assist you with questions related to these updated rules.