ENR: Tax Reforms a Big Deal for Small, Midsized Builders

I spoke with John Gregerson of the Engineering News-Record about the impact of the Tax Cuts and Jobs Act on the construction industry:

Following numerous proposals, TCJA eventually implemented a 20% tax deduction on qualified business income pass-throughs. Those results could prove significant, given that “pass-throughs account for up to 75% of U.S. builders,” notes Liam Donovan, a [Principal at Bracewell LLP and consultant] for Washington, D.C.-based Associated Builders and Contractors.

But the deduction cannot exceed the greater of 50% of the W2 wages of the business or 25% of W2 wages, in addition to 2.5% of the cost of property used in the business, Donovan says. When the dust settles, the provision reduces the effective top tax rate on business income to 29.6% for many smaller firms.

For many industry firms, expiration of the pass-through deduction in 2026 is a potential concern.

“TCJA implemented several sunset provisions on individual tax rates, the pass-through deduction included, to limit the scope of the legislation to $1.5 trillion,” Donovan says. “The administration has indicated it would like to extend the pass-through deduction, but, in the meantime, the provision creates uncertainty. As a result, some pass-throughs may want to run the numbers to determine whether it makes sense to reorganize as C corporations, given the permanency of their 21% tax rate.”

You can read the full piece here.

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