The 2026 Tax Changes Every Small Contractor Needs to Know

You're about to file your taxes for the first full year under the One Big Beautiful Bill Act. If that name means nothing to you, you're not alone. But the changes hiding inside this legislation could save — or cost — your business tens of thousands of dollars.

Here's what actually matters for small contractors, in plain language, with zero accounting jargon.

1. 100% Bonus Depreciation Is Back (Yes, All of It)

If you bought a truck, excavator, trailer, tools, or basically any equipment and put it into service after January 19, 2025, you can deduct the entire cost in year one.

Not 60%. Not 80%. All of it.

This had been phasing down since 2023 — from 80% to 60% to just 40% in 2025 — and contractors were watching their depreciation shrink. The new law reversed it completely.

What Counts

Anything you bought and actually started using for your business:

• Trucks and trailers (including the F-250 you bought in March)
• Heavy equipment — excavators, skid steers, lifts
• Tools and small equipment — everything from your laser level to your job site generator
• Technology — laptops, tablets, drones, field management software
• Office furniture and fixtures (if you have an office)

Section 179 Also Got a Bump

The Section 179 deduction cap increased to $2.5 million with phaseout starting at $4 million. For most small contractors, you'll hit 179 limits only if you're buying a fleet of trucks. But it gives you options — use 179 on specific big-ticket items, bonus depreciation on everything else.

2. Residential Contractors: Your Accounting Just Got Way Simpler

If you build or renovate homes — including multifamily — there's a change that could seriously improve your cash flow.

The Old Problem

Under the old rules, many contractors had to use the percentage-of-completion method (PCM) for tax reporting. That meant recognizing income based on how far along a project was, even if you hadn't been paid yet. You could owe taxes on money sitting in someone else's bank account.

PCM was required for most contracts over a certain threshold. It was a cash flow nightmare.

The New Rule

The OBBBA expanded the exception to PCM for all residential construction contracts — not just small ones. This includes:

• Single-family homes
• Multifamily apartment buildings
• Student housing
• Senior living facilities
• Most condo developments

Now you can use the completed contract method (CCM), which means you don't recognize income until the project is done.

3. R&D Expenses Are Deductible Again (Immediately)

This one flew under the radar but it's big for contractors doing anything innovative.

Since 2022, businesses had to capitalize and amortize R&D costs over 5 years instead of deducting them immediately. That was brutal. If you spent $50,000 developing a new process, you could only deduct $10,000 per year.

Under the new law, domestic R&D expenses are fully deductible in the year you incur them.

"But I'm Not a Tech Company"

You don't have to be. R&D in construction includes:

• Developing new building techniques or processes (e.g., a custom forming system)
• Testing new materials on projects
• Software development for internal tools
• Prototyping equipment modifications
• Process improvements documented with before/after results

4. Energy Credits Are Dying — Act Now or Lose Them

If you do any energy-efficient work, pay attention to these deadlines:

179D: Commercial Energy-Efficient Buildings

The deduction for energy-efficient improvements to commercial buildings applies only to projects that begin construction by June 30, 2026. After that, it's gone.

If you're doing HVAC upgrades, insulation work, or lighting retrofits on commercial buildings, the clock is ticking.

45L: Energy-Efficient New Homes

Builders can claim a per-unit credit for homes meeting energy-efficiency standards — but only for units acquired before July 1, 2026.

Solar and Wind Credits

Several investment and production tax credits for renewable energy projects are being phased out or terminated ahead of schedule. If you have solar or clean energy work in your pipeline, review timelines with your accountant immediately.

5. The QBI Deduction Is Now Permanent

The 20% Qualified Business Income deduction for pass-through entities (S-corps, LLCs, sole proprietors) was set to expire. It's now permanent under OBBBA.

If your construction business is structured as a pass-through, you keep the 20% deduction on qualified business income indefinitely. One less thing to worry about.

6. Business Interest Deduction: Better Than Before

The limitation on deducting business interest expense has been loosened. Without getting into the EBITDA vs. EBIT weeds — if you carry equipment loans, business lines of credit, or project financing, you can likely deduct more of your interest expense than last year.

This is worth a 5-minute conversation with your accountant if you carry significant debt.

What You Should Do Before April

The Documentation Theme

The theme across every change is the same: documentation wins. Purchase dates, in-service dates, project timelines, method elections — it all requires records.

If your current system is a shoebox of receipts and a Notes app, this is the year to fix that. Voice-based field tracking tools can automatically timestamp your equipment usage, job activities, and project progress — creating the exact documentation trail that makes tax time painless.

The Bottom Line

The 2026 tax landscape is actually more favorable for contractors than it's been in years:

• 100% bonus depreciation on equipment
• Simpler accounting for residential contractors
• Immediate R&D deductions instead of 5-year amortization
• Permanent QBI deduction for pass-throughs
• Looser interest limitations

But every single one of these benefits depends on documentation. No records, no deductions. It's that simple.

Don't wait until April to figure this out. Book 30 minutes with your accountant this month. Bring your equipment list, your project timeline, and your questions.

Your future self (and your bank account) will thank you.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your business.