INDUSTRY | 11/14/2024
Following Donald Trump’s 2024 election win, the construction industry is poised for significant changes as the administration’s proposed tax policies take shape. With potential corporate tax cuts, enhanced domestic production incentives, and shifts in environmental policy, construction firms will encounter both new opportunities and challenges. Here’s what to expect and how to prepare.
Enhanced Bonus Depreciation for Immediate Tax Savings
The administration plans to reintroduce 100% bonus depreciation, allowing construction companies to immediately deduct the full cost of qualifying capital investments, such as machinery and equipment.
- Key Benefits:
- Increased upfront cash flow for reinvestment.
- Opportunities to modernize operations and adopt productivity-enhancing technologies.
This policy could encourage construction firms to expand and upgrade their equipment inventory, improving operational efficiency.
Tariffs on Imported Goods and Rising Material Costs
The proposed imposition of higher tariffs on imported goods, ranging from 10% to 20% on general imports and up to 60% on goods from China, may significantly impact the construction industry. Materials such as steel, aluminum, and lumber, commonly sourced internationally, are likely to see price increases.
- Challenges:
- Higher material costs may pressure profit margins.
- Increased project costs could affect client relationships and project feasibility.
- Potential Solutions:
- Explore domestic suppliers to mitigate reliance on imports.
- Adjust project pricing strategies to reflect increased expenses.
Preservation of the Qualified Business Income (QBI) Deduction
The administration’s intention to extend the Qualified Business Income (QBI) deduction, set to expire in 2025, is welcome news for small- and mid-sized construction firms operating as pass-through entities.
- Benefits:
- Continued ability to deduct up to 20% of QBI.
- Substantial tax relief that boosts financial flexibility.
By making this deduction permanent, the administration could provide long-term tax savings for many construction businesses.
Reduced Emphasis on Environmental Tax Credits
The administration’s proposed rollback of clean-energy tax credits from the Inflation Reduction Act may reduce incentives for environmentally sustainable building practices.
- Implications:
- Renewable energy projects and green construction initiatives may lose financial appeal.
- Firms focused on sustainability may need to reassess their strategic approach.
Without these credits, construction companies may prioritize cost-effective methods over environmentally focused projects.
Strategic Planning for the Construction Industry
The proposed policies present a mixed outlook for construction firms. While enhanced bonus depreciation and QBI deduction extensions offer clear benefits, challenges such as rising material costs and reduced environmental incentives require proactive planning.
- Action Steps:
- Assess the impact of tariffs on material sourcing and explore domestic alternatives.
- Leverage tax benefits like bonus depreciation to modernize operations.
- Work with tax advisors to optimize strategies for navigating policy changes.
- Consider the long-term implications of reduced environmental credits when planning future projects.
How We Can Help
Adapting to shifting tax policies requires informed decision-making and tailored strategies. At Chartered, we specialize in helping construction companies navigate complex regulatory landscapes, optimize tax strategies, and maximize opportunities for growth.
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