Paying Up

The new federal tax law offers pluses and minuses for construction. 

By Elizabeth Boone

The 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 so-called 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.