The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, expands opportunities for architecture and engineering (A&E) firms to reduce taxes, invest in growth, and enhance competitiveness. Building on the 2017 Tax Cuts and Jobs Act, OBBBA provides both permanent and temporary tax incentives that can significantly impact cash flow, business planning, and long-term growth strategies.
Top Tax Provisions Impacting A&E Firms
1. Full Deduction for R&D Expenses
OBBBA restores full expensing for domestic research and development (R&D) costs, reversing the amortization requirement from 2022–2024. Firms can now:
- Expense all unamortized costs in 2025,
- Expense half in 2025 and the remainder in 2026, or
- Continue amortizing over six years.
Smaller firms (gross receipts under $31 million) can also amend 2022–2024 returns to reclaim deductions previously limited by amortization. This change provides immediate cash flow benefits and encourages continued innovation.
2. Permanent QBI Deduction
The 20% Qualified Business Income (QBI) deduction for pass-through entities is now permanent. Proper owner compensation, bonus, and distribution planning is essential to fully leverage this deduction while balancing overhead and profitability.
3. Bonus Depreciation and Section 179
OBBBA permanently reinstates 100% bonus depreciation and increases Section 179 expensing limits ($2.5M deduction with a $4M phase-out). A&E firms can apply this to equipment, software, vehicles, and other technology investments, offering significant flexibility for growth-focused capital planning.
4. 179D Energy Efficiency Deduction
The 179D deduction allows A&E designers to claim deductions for energy-efficient building projects when the deduction is allocated by a public or non-profit project. OBBBA introduces a major change:
- The 179D deduction is now set to end after 2026.
- Designers who have historically claimed this deduction will no longer be able to access these allocations, resulting in fewer write-offs and higher taxable income.
- Strategic tax planning is now more important than ever to optimize remaining deductions, coordinate project timing, and explore alternative incentives before the sunset.
5. SALT Deduction and PTET Elections
- The federal cap on state and local tax (SALT) deductions is temporarily raised to $40,000 for individuals with income under $500,000.
- Pass-through entity tax (PTET) elections remain a strategic option in high-tax states, providing flexibility for high-income owners to reduce state tax liabilities.
6. Relaxed Interest Deduction Rules
OBBBA restores the business interest deduction limitation under Section 163(j) to 30% of EBITDA instead of EBIT. This benefits firms using debt financing for capital-intensive growth projects, including equipment, facilities, or technology expansion.
7. Deduction for Overtime Wages
A new above-the-line deduction is available for qualifying overtime pay, helping firms with hourly or field staff reduce individual taxable income.
Next Steps for A&E Firms
To maximize OBBBA benefits, firms should:
- Review R&D activity and determine optimal expensing for 2025 and beyond.
- Strategically time asset acquisitions to leverage bonus depreciation and Section 179.
- Reassess owner compensation, bonuses, and distributions to optimize QBI benefits.
- Model SALT/PTET scenarios to plan for state and local tax exposure.
- Assess financing strategies under revised interest deduction rules.
- Plan energy-efficient projects and 179D allocations carefully, as the deduction ends after 2026.
Strategic Tax Planning is More Critical Than Ever
The changes under OBBBA, particularly the sunset of the 179D deduction, make strategic tax planning essential. A&E firms must evaluate every available incentive, structure projects efficiently, and time deductions to reduce taxable income and optimize cash flow.
How Engineered Tax Services (ETS) Can Help
At Engineered Tax Services (ETS), we specialize in helping A&E firms identify and implement every potential tax-saving opportunity. Our team provides:
- Engineered Incentive Reports to uncover all federal and state deductions, credits, and incentives,
- Guidance on R&D expense calculations, including amendments for prior-year deductions,
- Support with 179D planning before the 2026 sunset,
- Strategic advice on capital investments, bonus depreciation, and Section 179 timing.
With ETS, your firm can navigate the complexities of OBBBA and position itself for sustained growth while minimizing tax liability.
