How Construction Companies Can Make the Most of 100% Bonus Depreciation: Four Practical Recommendations

Editor's Note:Chris Coleman is the partner in charge of RubinBrown's Construction Services Group. The views expressed in this article are solely those of the author.

Thanks to theOne Big Beautiful Bill Act, construction firms have finally received the tax relief they have long sought. However, to fully realize the benefits of 100% bonus depreciation this year, the key lies not only in the policy change itself, but also in documentation preparation and execution details.

Since the Actrestored full bonus depreciationin the months since, many contractors have begun re-evaluating capital expenditure plans. Equipment purchases previously deferred due to the phase-down of bonus depreciation are back on the agenda; facility renovations and fleet upgrades can now generate immediate tax deductions. For construction firms with thin profit margins and high financing costs, 100% depreciation in the current year can significantly improve cash flow.

Despite this good news, the opportunity coincides with a challenging period. The IRS is implementing major tax law revisions while facing staffing reductions and extended processing times. There are fewer experienced personnel available to issue guidance, respond to technical questions, or resolve ambiguities in real time. The mismatch between powerful incentives and an overstretched administrative system raises the stakes for construction firms entering tax season.

Following these four steps can help contractors protect the value of their bonus depreciation claims in an environment of constrained IRS resources.

1. Deeply Understand the 100% Bonus Depreciation Opportunity

The restoration of 100% bonus depreciation passed in July was widely welcomed by the industry. The provision reverses the phase-down schedule under the 2017 Tax Cuts and Jobs Act, which had limited the first-year deduction to 40%. Eligible taxpayers no longer need to spread the deduction over multiple years; instead, they can deduct the full cost in the first year the qualified property is placed in service.

For construction firms that frequently invest in capital-intensive equipment, machinery, vehicles, and facilities, the value is obvious. The deduction amount hasn't changed, but the timing has. Immediate full expensing reduces current taxable income and improves liquidity for the current tax year.

For many businesses, this deduction will directly impact purchasing decisions. Equipment upgrades that might have been deferred under the phase-down schedule are now more attractive. The policy change provides the clarity and predictability construction firms value when planning multi-year capital strategies. It also affects internal forecasting models, as depreciation assumptions and after-tax cash impacts influence project pricing, capital allocation, and debt covenant planning.

2. Consider the Reality of Constrained IRS Resources

Since the workforce reductions implemented last year,multiple IRS divisions are understaffed. This reality increases the importance of accuracy for construction firms planning to rely on bonus depreciation this filing season.

With fewer experienced staff available to interpret new provisions, responses to technical inquiries are slower and resolving ambiguities takes longer. Delays in formal regulation issuance can leave gray areas unresolved for extended periods. Returns requiring additional review or amended filings may take longer to process, delaying refunds or creating uncertainty about final tax positions.

This environment raises the stakes for construction firms accelerating depreciation strategies to improve liquidity. When interpretive issues remain unresolved, the burden of proof shifts more to the taxpayer, requiring them to ensure positions are well-supported and internally consistent before filing. Maintaining good documentation throughout the process is critical.

3. Use Cost Segregation Studies Prudently

Cost segregation planning—which allows businesses to break down real estate projects into components with shorter tax lives—will have a greater impact under the amplifying effect of 100% bonus depreciation. Contractors should be aware of the significant tax benefits this area offers property owners.

When first-year expensing can reach 100%, asset classification becomes even more critical. So-called "cost segregation studies" can identify building components that qualify for shorter recovery periods, often reclassifying items that would otherwise default to 39-year or 27.5-year depreciation into 15-year land improvements or even shorter periods.

Assets such as parking lots, fences, site lighting, and certain exterior improvements, once correctly identified, can qualify for immediate expensing. The result is significantly accelerated deductions and correspondingly improved after-tax cash flow—especially for capital-intensive projects like warehouses, manufacturing facilities, and large multifamily residential developments.

Under current bonus depreciation rules, this benefit is amplified and further strengthened by the Qualified Production Property provision in OBBBA. That provision allows certain manufacturing and production facilities to recover construction costs faster, thereby increasing the value of correctly identifying and classifying project components.

This is also why maintaining relevant documentation is so important as the tax value of accelerated deductions rises. Engineering-based cost segregation studies must clearly link tax classifications to the physical components of the property and remain consistent with established IRS guidance. In an environment where IRS resources are constrained but enforcement attention persists, poorly supported studies can lead to extended reviews, additional information requests, or asset reclassification during examinations.

4. Strengthen Fixed Asset and Process Discipline

The same caution applies to broader fixed asset management. When construction firms move quickly to capture accelerated depreciation benefits, they should ensure their fixed asset ledgers—the lists of machinery, buildings, vehicles, and more—are accurate and up to date. Obsolete or "ghost" assets lingering on the books can cause problems, slowing processing or complicating filings. Cleaning up legacy entries, reconciling book and tax depreciation schedules, and confirming placed-in-service dates are foundational steps to reduce risk.

Internal controls related to capitalization thresholds and asset tagging should also be revisited. Policies that clearly define when an asset is considered placed in service, how supporting invoices are retained, and how cost allocations are reviewed can build a defensible framework if issues arise. Establishing these guardrails before tax season reduces operational pressure and enhances confidence in filing positions.

Construction firms move quickly out of business necessity. In a tax season characterized by administrative strain, precision carries more weight. Firms that align documentation, asset records, and internal processes will be well-positioned to fully capture the benefits of accelerated depreciation while minimizing unnecessary exposure to risk.