2026 Tax Changes Every Commercial Contractor Should Know
The 2025 tax law (the One Big Beautiful Bill Act, or OBBBA) made several contractor-friendly rules permanent, and 2026 is the first full year they apply. Most of these changes cut taxes. Some of them can also shrink the net worth and working capital your surety sees, so the right move depends on your bond program, not only your tax bill.
This guide covers the changes that matter most to commercial subcontractors and general contractors with $5M to $50M in revenue, and what to do before year-end.
Equipment: 100% bonus depreciation is back for good
Equipment, trucks, and other qualifying property acquired and placed in service after January 19, 2025 can be written off 100% in the first year. The law made this permanent, so there is no phase-down to plan around. (CBIZ)
Section 179 expensing also grew. For 2026, the limit is $2,560,000, and it starts phasing out once you place more than $4,090,000 of qualifying property in service. (Rev. Proc. 2025-32 analysis)
Why both matter: some states do not follow federal bonus depreciation. In those states, Section 179 is often the better tool for the state return.
Accounting methods: the $32 million test
For 2026, a contractor whose average annual gross receipts for the prior three years are $32 million or less passes the small business gross receipts test. (Rev. Proc. 2025-32 analysis) Passing it generally opens up simpler tax methods, such as the cash method and, for long-term contracts expected to finish within two years, the completed contract method instead of percentage of completion.
If you are growing past the threshold, plan ahead. Crossing it can force a method change and pull income forward into the year you cross.
One more change: OBBBA widened the home construction exception from percentage of completion to cover more residential contracts, starting in 2026 for calendar-year taxpayers. (CBIZ) It does not apply to commercial work, so most of our clients will not use it.
Interest on equipment loans and lines of credit
The cap on business interest deductions (Section 163(j)) is generally 30% of adjusted taxable income. Starting with tax years that begin after December 31, 2024, depreciation and amortization are added back again when computing that income. (IRS FS-2026-14) A bigger base means a bigger allowed interest deduction, which helps contractors who finance equipment or carry a line of credit.
Contractors under the $32 million test are generally exempt from this cap. If you once elected out as a real property trade or business, the IRS has issued transition guidance (Rev. Proc. 2026-17) on withdrawing that election. Ask whether it now makes sense for you.
Owners: QBI, SALT, and 1099s
20% QBI deduction (Section 199A) made permanent. S corp and partnership owners keep the deduction. For 2026, the wage and property limits start phasing in above $403,500 of taxable income for joint filers.
SALT cap raised to $40,000 (from 2025), with phase-downs above $500,000 of income. Pass-through entity tax (PTET) elections are still allowed and often still worth it for higher earners.
1099-NEC and 1099-MISC threshold raised from $600 to $2,000. Applies to payments made in 2026, so the forms filed in early 2027. Collect W-9s from every sub anyway.
Sources: CBIZ, Rev. Proc. 2025-32 analysis, Patriot Software
The bonding trap: a tax cut that shrinks your bond line
A large equipment write-off lowers your tax bill. If your financial statements follow the tax basis, it also lowers your reported net worth in the same year. Buying that equipment with cash also lowers your working capital. Those are the two numbers sureties weigh most when they set your bond line.
Before you buy equipment in December to save tax, run both numbers:
Tax saved this year
Change in working capital and net worth on the statements your surety will review
Often the answer is still to buy, but finance it, time it, or present it differently. Coordinate with your CPA and your surety agent before year-end, not after.
Year-end checklist
Confirm your three-year average gross receipts against the $32 million test
List planned equipment purchases and model bonus depreciation vs Section 179, federal and state
Check the effect of each purchase on working capital and net worth before you buy
Review whether a PTET election makes sense for 2026
Collect a W-9 from every sub and vendor before the first payment
Close the books and update WIP before tax planning meetings, so decisions use real numbers
Want a tax plan that protects your bond line? Schedule A Call with SuretyCFO™.
This article is general information, not tax advice for your situation. Talk with your tax advisor before acting.
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