Q1 2026 Construction Tax Planning: Maximizing OBBBA’s New Depreciation Rules

As construction companies settle into 2026, the One Big Beautiful Bill Act (OBBBA) creates unprecedented opportunities for strategic tax planning. The permanent restoration of 100% bonus depreciation, combined with expanded Section 179 limits and new Qualified Production Property provisions, fundamentally changes how contractors should approach equipment purchases, project planning, and cash flow management.

For construction companies, January represents an opportune planning window. Equipment orders placed now can significantly impact both 2026 tax liability and long-term competitive positioning. The key is taking a strategic, integrated approach rather than treating these provisions as isolated compliance matters.

Below are several items construction leaders should consider during their Q1 planning sessions to help create confidence in their tax strategy while positioning the organization for continued growth. As your team begins this planning process, BMSS professionals are available to provide guidance and answer any questions you may have.

Action Items for Q1 2026

1.     Conduct an Equipment Needs Assessment

Start by evaluating your entire equipment fleet with fresh eyes. The permanent 100% bonus depreciation makes equipment replacement decisions fundamentally different from previous years.

Key Questions to Ask:

• Which equipment purchased in 2025 qualifies for retroactive 100% bonus depreciation?
• What equipment replacements were you planning for 2027-2028 that could be accelerated?
• Are there productivity gains from newer equipment that now justify earlier replacement?
• Which rental equipment could you consider purchasing instead?

Remember, both new and used equipment qualify for 100% bonus depreciation, provided you didn’t previously own it and acquired it through an arm’s-length transaction. This significantly expands your options for cost-effective fleet upgrades. Contractors may be able to find great value in quality used equipment that can be fully expensed in year one.

2.     Review 2025 Retroactive Opportunities

The OBBBA made 100% bonus depreciation effective for property placed in service after January 19, 2025. This means equipment purchased and put into service in the latter part of 2025 may qualify for full expensing that wasn’t available when you made the original purchase decision.

Documentation Review:

• Compile delivery receipts and placed-in-service dates for all 2025 equipment purchases.
• Verify which assets meet the January 19, 2025 effective date.
• Calculate the tax impact of retroactive 100% expensing.
• Consider whether to elect out of bonus depreciation for any assets to preserve deductions for future years.
  

3.     Map Out 2026 Equipment Purchase Strategy

With permanent 100% bonus depreciation, you can now approach equipment purchases as immediate tax deductions rather than multi-year depreciation schedules. This changes the financial analysis significantly.

Strategic Considerations:

• Order equipment early to avoid supply chain delays that could push delivery into 2027.
• Prioritize equipment with the highest productivity gains and longest useful life.
• Consider purchasing rather than leasing, given the immediate expensing benefit.
• Evaluate whether to make large purchases early in the year to improve cash flow for mid-year projects.

Understanding the New Section 179 Limits

The OBBBA increased Section 179 expensing limits to $2.5 million with a $4 million phase-out threshold. For construction companies, this provides additional flexibility when combined with bonus depreciation. In certain situations, Section 179 may be the only available option for immediate expensing, as assets such as certain nonresidential real property improvements may be eligible for Section 179 but do not qualify for bonus depreciation.

Income Limitation Planning: Unlike bonus depreciation, Section 179 cannot create or increase a net operating loss. For profitable contractors, this isn’t usually a constraint, but it’s important to coordinate both deductions to optimize taxable income.

Qualified Production Property: New Opportunities for Building Contractors

The OBBBA created a new Section 168(n) provision allowing 100% expensing for certain nonresidential real property used in production activities. This can benefit construction companies in several ways:

Potential Direct Applications

These examples are illustrative and not exhaustive:

• Precast concrete operations: Facilities used to manufacture precast components
• Prefabrication shops: Buildings used to fabricate components off-site
• Material processing facilities: Operations that substantially transform raw materials
• Other production-oriented facilities:  Properties used in activities that go beyond on-site assembly and involve qualifying production or manufacturing processes.

Key Requirements

• Construction must begin after January 19, 2025, but before January 1, 2029
• Property must be placed in service before January 1, 2031
• Must be used in manufacturing, production, or refining activities
• Original use must commence with your company

While this might initially seem irrelevant to traditional construction companies, there may be opportunities for contractors involved in warehouse, logistics, and manufacturing facility development to qualify for this significant benefit.

Importantly, several interpretive issues for qualification remain unresolved, including what constitutes a “substantial transformation,” how to evaluate qualifying versus non-qualifying use within a property, and the treatment of improvements, rehabilitations, and expansions. Additional Treasury guidance is expected, and careful analysis will be required as rules are clarified.

Key Takeaways: Building Your Competitive Advantage

The OBBBA creates the strongest equipment purchase incentives construction companies have seen in years. The combination of permanent 100% bonus depreciation, expanded Section 179 limits, and new qualified production property benefits fundamentally changes the economics of equipment investment.

Success requires moving beyond compliance-focused thinking toward strategic integration of tax planning with operational decisions. Construction companies that develop systematic approaches to capturing these benefits while maintaining strong financial positions will create sustainable competitive advantages.

The BMSS difference: We help construction clients integrate tax planning considerations into their broader business strategy, creating value that extends beyond immediate tax savings to include improved competitiveness in bid processes and enhanced cash flow management.

Ready to Maximize Your 2026 Opportunities?

The OBBBA provisions create significant opportunities, but they require thoughtful planning, systematic implementation, and ongoing coordination with business operations. Construction companies that take action now will be best positioned to capture maximum benefits throughout the year.

BMSS’ construction team brings over three decades of experience serving contractors, subcontractors, and home builders across the Southeast. Our comprehensive approach ensures you capture available benefits while maintaining compliance and supporting your growth objectives.

Contact BMSS today to learn more about the unique opportunities that could benefit your company by calling (833) CPA-BMSS or visit our website for more information.