For construction business owners, keeping up with the tax code is as demanding as managing a complex jobsite. With more than 50 temporary tax provisions expiring at the end of 2013, contractors have been watching Congress debate whether to revive, extend, or make permanent a range of incentives that directly affect equipment purchases, hiring decisions, and operational costs. Understanding which tax breaks are on the table and how they apply to your construction firm can mean the difference between a healthy bottom line and a missed opportunity. This article examines the six major business tax provisions worth tracking as lawmakers continue to negotiate their fate. For a broader look at how tax strategy fits into your overall business planning, see Smart Tax Planning for Construction Business Proprietors and Partnerships.
The State of Construction Tax Breaks in Congress
Congress has been working intermittently to reinstate dozens of expired tax provisions, some of which date back to the economic downturn and were designed to stimulate business investment. However, most legislative efforts have stalled due to procedural disputes, amendment battles, broader tax reform discussions, and concerns over the impact on federal budget deficits. The White House has also expressed opposition to making many of these tax breaks permanent, arguing they benefit businesses more than individual taxpayers.
The situation leaves construction firms in a difficult position. Equipment purchasing decisions, hiring plans, and investment strategies all depend on knowing what tax relief will be available. While the political brinksmanship continues, contractors who understand the key provisions on the table can position themselves to act quickly if and when Congress acts.
Below are the six business tax breaks construction company owners should monitor as the legislative calendar progresses.
Depreciation Deductions That Reduce Equipment Costs
Two of the most significant tax provisions for construction companies relate to how quickly equipment costs can be recovered. Both the Section 179 deduction and bonus depreciation directly affect the timing and amount of tax relief available when investing in machinery, vehicles, and other capital assets.
Section 179 Expensing
Section 179 of the Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment and software in the year it is placed in service, rather than depreciating it over several years. In June 2014, the House voted to restore and make permanent the USD 500,000 limit on Section 179 expensing, up from the USD 25,000 limit that took effect on January 1, 2014 after the previous higher limits expired. The bill includes an inflation adjustment provision for the new limit and would apply retroactively to the beginning of 2014. As of the latest legislative session, the bill awaits passage in the Senate.
For a construction business, this means that purchasing a new excavator, dozer, or fleet of pickup trucks could qualify for immediate expensing rather than being spread across the useful life of the asset. If the USD 500,000 limit is restored retroactively, contractors who made equipment purchases in early 2014 could potentially amend their returns to claim larger deductions. For more on leveraging tax breaks for equipment financing, see Tax Breaks As a Financing Source for New and Used Construction Equipment.
Bonus Depreciation
Bonus depreciation was established during the Bush administration in 2008 and allowed companies to deduct an additional 50 percent of an asset’s value in the first year of service, on top of the regular depreciation schedule. During the economic recovery, the provision was temporarily expanded to allow 100 percent first-year bonus depreciation, but it expired at the end of 2013 along with many other temporary tax provisions.
In July 2014, the House voted to revive the original 50 percent bonus depreciation provision and remove its expiration date, making it a permanent feature of the tax code. Supporters argue that permanent bonus depreciation would encourage sustained capital investment by construction firms and other industries. Opponents, particularly balanced-budget advocates, counter that the policy would cost an estimated USD 287 billion in tax revenues over the next decade.
For contractors, bonus depreciation works alongside Section 179 to maximize first-year deductions. If both provisions are restored, a construction company purchasing a USD 600,000 piece of equipment could potentially expense USD 500,000 under Section 179 and then take bonus depreciation on a portion of the remaining balance, substantially reducing taxable income for the year. Before investing in new technology and equipment, consider evaluating your readiness with guidance from Smart Iron and Your Construction Business How to Evaluate Technology Readiness Before You Invest.
Tax Credits for Hiring, Operations, and Development
Beyond depreciation-related deductions, several tax credits directly benefit construction companies through hiring incentives, operational cost reductions, and community development participation. Unlike deductions, which reduce taxable income, tax credits reduce tax liability dollar for dollar, making them especially valuable.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) was extended through the end of 2013 by the American Taxpayer Relief Act of 2012. This credit encourages employers to hire workers from targeted groups, including veterans, long-term unemployment recipients, and other individuals facing barriers to employment. For taxable employers, the credit reaches an upper limit of USD 9,600 per qualified veteran. Tax-exempt organizations can claim up to USD 6,240 per qualifying hire.
For construction companies that regularly hire skilled and unskilled labor, WOTC represents a meaningful opportunity to offset payroll costs while building a diverse workforce. If Congress reinstates this credit, contractors who hire veterans or other qualifying individuals could see significant savings. The recent attention to veterans’ affairs may provide additional political momentum for restoring this provision.
Fuel Tax Credit for Construction Equipment
In 2006, Congress passed legislation allowing companies to claim a fuel tax credit based on propane used as fuel in motor vehicles. Importantly for the construction industry, this definition includes forklift trucks used at construction sites, industrial plants, and warehouses. The credit amounts to cents per gallon and is claimed on IRS Form 4136.
Originally set to expire in 2009, the credit was extended twice retroactively before expiring again on December 31, 2013. Contractors who operate propane-powered forklifts and other qualifying vehicles should track whether this provision is included in any tax extenders package moving through Congress.
New Markets Tax Credit
Introduced in 2003, the New Markets Tax Credit (NMTC) was designed to stimulate investment in economically distressed communities. The program was recently slated for a two-year extension as part of the EXPIRE Act approved by the Senate Finance Committee in April 2014. Between 2003 and 2010, the NMTC allocated USD 5.4 billion in credits, which generated approximately USD 45 billion in total investment, representing an 8-to-1 leverage ratio.
For construction companies, the NMTC has been a powerful tool for funding projects in underserved areas. Credits are allocated to community development entities, which then pass them on to investors in qualifying projects. This has the effect of reducing the effective cost of capital for construction projects in designated low-income communities. Contractors who work on commercial, industrial, or mixed-use developments in eligible areas should pay close attention to whether this credit is extended.
Domestic Production Activities Deduction
The Domestic Production Activities Deduction, codified in IRS Code Section 199, allows a deduction equal to 9 percent of income derived from qualified domestic production activities. This provision is fully phased in and has no expiration date, making it one of the few stable tax benefits on this list. However, its relevance to the construction industry makes it essential reading for contractors.
Qualified production activities include construction performed in the United States, engineering and architectural services performed in the United States for construction projects, and certain manufacturing and extraction activities. The deduction is calculated based on the excess of a company’s domestic production gross receipts over the sum of cost of goods sold allocable to those receipts plus other expenses, losses, and deductions.
Qualifying activities under Section 199 include:
- Construction of real property performed in the United States by a taxpayer in the trade or business of construction
- Substantial renovation of real property located in the United States
- Engineering and architectural services performed in the United States for construction projects located in the United States
- Manufacturing, producing, growing, or extracting tangible personal property in the United States
- Software development performed in the United States
For a midsize construction firm with USD 10 million in qualified domestic production income, the Section 199 deduction could reduce taxable income by up to USD 900,000. This is a substantial saving that does not depend on congressional action, making it a reliable component of any construction company’s tax planning strategy. Protecting your business from financial surprises also means having strong safeguards in place; learn more from 4 Business Practices That Protect Your Contracting Business from Financial Failure.
Planning for an Uncertain Tax Environment
Given the current mood in Congress and the pattern of last-minute negotiations, the final fate of these business-friendly tax provisions remains uncertain. Construction companies that prefer a stable, predictable tax environment face a wait-and-see situation. However, proactive planning can help contractors take advantage of these breaks if and when they are reinstated.
The table below summarizes the six tax breaks, their status, and their relevance to construction businesses.
| Tax Provision | Status | Key Benefit for Construction | Maximum Value |
|---|---|---|---|
| Section 179 Deduction | House passed; Senate pending | Immediate expensing of equipment purchases | USD 500,000 limit |
| Bonus Depreciation | House passed; Senate pending | Additional 50% first-year depreciation on capital assets | 50% of asset value |
| Work Opportunity Tax Credit | Expired; awaiting renewal | Credit for hiring veterans and targeted groups | Up to USD 9,600 per hire |
| Fuel Tax Credit (Propane) | Expired; awaiting renewal | Per-gallon credit for propane used in forklifts and vehicles | Cents per gallon |
| New Markets Tax Credit | Proposed two-year extension | Investment credit for projects in low-income communities | 8:1 investment leverage |
| Section 199 Deduction | Permanent; no action needed | 9% deduction on qualified domestic production income | 9% of qualified income |
To prepare for potential changes, construction business owners should consider the following steps:
- Review equipment purchasing plans for the current year and identify assets that would benefit from retroactive Section 179 or bonus depreciation provisions
- Document hiring practices and track candidates from targeted groups, including veterans, in case the Work Opportunity Tax Credit is reinstated retroactively
- Evaluate any pending or planned construction projects in economically distressed areas that could qualify for New Markets Tax Credit allocations
- Work with a qualified tax professional to calculate the full benefit of the Section 199 Domestic Production Activities Deduction, which remains available regardless of congressional action
- Monitor legislative developments closely, particularly after the mid-term elections, when momentum on tax extenders typically increases
Consult with a certified public accountant or tax advisor to determine how these provisions apply to your specific business circumstances. Tax laws are subject to change, and professional guidance ensures you capture every deduction and credit your construction company is entitled to claim.