Construction Today - Volume 16, Issue 2 - 11
The new federal tax law offers pluses and minuses for construction. BY ELIZABETH BOONE
Recent changes to federal
tax law have far-reaching
effects on construction.
he changes brought about by the
2017 federal tax act are likely to
be recorded on both sides of the
construction industry's ledger. On
the positive side is the decrease in effective
tax rates for both corporations and individual
owners of partnerships and other types of socalled pass-through entities. The construction
industry is sure to also welcome increased
bonus depreciation and expensing as well as
a higher historic rehabilitation tax credit.
Negatives in the tax act include limits on
the deductibility of business interest expense
- a sore point for businesses that rely on
loans to finance their projects. Construction
firms operating as a sole proprietorship or
a pass-through entity such as a partnership
will be limited in their ability to deduct excess business losses. The
reduced mortgage interest deduction could dampen profits for residential construction firms with customers located in affluent areas.
Construction firms typically purchase machinery and equipment, which can generally be depreciated or expensed. Enhanced
provisions in this area will likely help reduce tax bills for the construction industry.
Bonus Depreciation Increase
Bonus depreciation is increased from 50 percent to 100 percent
under the new tax law. Taxpayers are generally not permitted to
expense the full cost of acquiring property for business use in the
year they purchase it. Instead, they must take depreciation deductions allocated over the "useful life" of the property. The act permits
taxpayers to immediately expense 100 percent of the cost of qualified property acquired and placed in service after Sept. 27, 2017, and
before Jan. 1, 2023. The act removes the requirement for taxpayers to
VOLUME 16, ISSUE 2 CONSTRUCTION-TODAY.COM