Expiring Tax Cuts and Jobs Act Provisions: What the Construction Industry Must Know

At a glance

• Main takeaway: Several notable tax provisions from the Tax Cuts and Jobs Act are set to expire at the end of 2025, which can create an increased tax burden.  
• Impact on your business: It’s crucial for construction companies to act now if they want to leverage the more lucrative tax provisions from the Tax Cuts and Jobs Act and minimize their business impact once they expire. 
• Next steps: Aprio’s Construction Industry Services team can develop customized tax projections and models to help you understand the impact on your business.  

Schedule a consultation

The full story

 The expiration of many favorable tax provisions built into the Tax Cuts and Jobs Act (TCJA) of 2017 will have a significant impact on the construction industry. While we do not have a crystal ball to predict the future, it is highly unlikely that Congress will make a move to extend any of the tax provisions included in the TCJA this year due to this year’s election. Therefore, it’s crucial for construction companies to act now and not only leverage some of the more lucrative tax provisions from the TCJA but also proactively plan to minimize their impacts once these provisions expire.   

Expiring TCJA provisions in 2025  

While the TCJA brought many tax provisions to life, some favorable and some not, there are several key tax provisions that are set to expire at the end of 2025. The most notable provisions sunsetting are: 

1. Qualified Business Income (QBI) Deduction: Under the QBI provision, eligible pass-through-entities (PTEs) can qualify for a deduction up to 20%. This deduction replaced a prior provision, the domestic production activities deduction (DPAD), that benefited construction companies. Prior to the TCJA, the DPAD was an incentive for construction companies offering a 9% deduction for construction related activities in the U.S. It was later repealed with the TCJA in the 2018 tax year. The QBI deduction was designed to provide PTEs with similar tax benefits established for C corporations, which are not set to expire. If Congress allows the QBI deduction to expire, the top tax rate reverts to 39.6% for individuals, creating a substantial tax rate disparity between PTEs and C corporations.   
     
2. Bonus Depreciation Phase-Out: Construction companies have been able to significantly benefit from 100% bonus depreciation due to the ability to fully write off the investment of eligible fixed asset purchases, such as heavy machinery and equipment. While the TCJA initially raised the deduction to 100%, it also provided for a deduction phaseout of 20% each year commencing in 2023. Accordingly, the 2023, 2024, 2025, and 2026 deductions decrease to 80%, 60%, 40%, and 20%, respectively, and will ultimately zero out in 2027. While it is unknown if Congress will reinstate the deduction back to 100%, construction companies can still leverage the Section 179 deduction of up to $1.22 million for eligible purchases.   
     
3. Estate & Gift Tax Exemption: While the estate & gift tax exemption is not specific to construction companies, estate planning in general should always be a consideration. The current estate gift tax exemption per taxpayer is approximately $13 million and will decrease to $7 million at the end of 2025. Estate planning is critical to optimize lucrative tax breaks available when transferring wealth to the next generation.   
     
4. State and Local Tax (SALT) Deduction: The SALT deduction allows taxpayers to deduct their state & local income, and property taxes from their federal income. However, the most stringent limitations to the SALT deduction came when the TCJA imposed a $10,000 cap for individuals. Many states responded with an entity level tax deduction known as a Pass-Through Entity (PTE) deduction. Each state has its own rules and mechanics for the PTE tax which increases the complexity of this benefit. If Congress allows the $10,000 deduction cap to expire at the end of 2025, individuals will once again be able to deduct their state & local income and property taxes in full. Consequently, individuals should once again run an analysis to determine if they’re subject to the Alternative Minimum Tax (AMT), thereby eliminating the benefit of additional state taxes being paid in.  

Financial preparation for expiring TCJA tax provisions 

It’s imperative for construction companies to fully understand what TCJA tax provisions are expiring and the impact it could have on their business from a variety of aspects, including financial planning, business investments, cash flow, equipment purchases, and operations.  

Preparation for the expiration of TCJA provisions will look different for every company. Some construction companies may want to consider shifting their business entity to a C corporation to benefit from a permanent lower tax rate, while some may conclude that the tax implications of this move could be detrimental. Regardless, now is a good time to review your equipment purchasing decisions and how those could change after the TCJA provisions expire.   

Navigating the future without key TCJA tax provisions

Without proactive planning, construction companies could potentially face an increased tax burden. Consulting with trusted tax advisors and financial planners can provide valuable insights into optimizing several of the TCJA provisions and minimize the negative tax impact once they sunset on December 31, 2025. 

The bottom line

Given the upcoming changes to the TCJA provisions, Aprio’s Construction Industry Services team can develop customized tax projections and models so you can gain a better understanding of the impact on your construction business moving forward.  

This article first appeared in the September 2024 issue of Construction News.

Related Resources/Assets/Aprio.com articles/pages

Construction in Texas: Building Lasting Success Beyond the Boom 

Aprio’s Construction Industry Services 

Aprio’s Real Estate CPA Services