Tax Time for Home Builders: Maximizing Deductions and Staying Compliant

Tax season is upon us, and home builders have several new tax changes to pay attention to as they begin the annual tax filing process.

Maximizing deductions and staying compliant are key goals for most filers, and there are some recent additions and changes to the tax code that mean home builders should take the time to review updates, as it may mean a lower tax bill or substantive changes to the ways in which some items are treated in the tax code.

The National Association of Home Builders has outlined some of these changes on their website. Construction companies are affected by a range of changes, some of which are retroactive for the 2025 tax year, while other changes go into effect in 2026.

With careful consideration and planning, your home building business can take advantage of many of the new tax provisions.

Here are some of the ways these policies could impact your business taxes, according to tax experts.

100% Bonus Depreciation

This is one provision that is retroactive to 2025, which means that qualified purchases made during the calendar year are included. Congress restored full expensing, or 100% bonus depreciation, in the year of purchase for qualifying equipment and property.

This change should encourage companies to invest in new machinery and equipment. And, the phasing schedule has been eliminated, which means this provision is now permanent. This eliminates uncertainty and helps organizations to plan for new capital equipment purchases, knowing they can expense those items the year the purchase is made.

Section 179 increases

Business taxpayers are permitted to deduct the cost of certain types of property as an expense when it is first used. The maximum deduction is increased to $2.5 million, up from a maximum of $1 million, and the “phaseout” threshold has also increased to $4 million, up from a phaseout of $2.5 million. Again, this change is an important planning tool, as construction firms can immediately deduct the full cost of qualifying property within the new limits.

Shorter windows for green energy credits

Home builders who used green energy tax incentives in construction are likely aware that many of these programs are now set to expire, some as soon as construction that begins after June 30, 2026. The energy efficient home credit, known as the 45L credit, which offers incentives in the construction of energy efficient homes, is one such program set to expire.

Section 460(e) changes

This is an accounting provision in the tax code, known as the “Completed Contract” rule. It is designed to ensure home builders aren’t taxed on home deposits made by a buyer for the construction of a home. Previously, only buildings that had four or fewer dwelling units could use this accounting method.

The changes made expand the rule to include larger-scale condominium projects and residential buildings with more than four units, to include buyers of condos who have made deposits during construction. And it’s another provision that is retroactive, to include condominium building contracts dated from July 4, 2025.

Other ways to save—and stay compliant

Tax season comes every year, but for many small- and medium-sized businesses, it causes a scramble. Staying organized throughout the year is key to a lower-stress tax season. Here are some ideas to implement this year, so that next year’s filing goes smoothly.

Make sure you’re maximizing deductions – As outlined above, home builders have several industry-specific tax deductions for which you may be eligible. Not maximizing your deductions is leaving money on the table, so knowing and understanding which ones your business is eligible to take advantage of is key. Talk to a tax professional for more details.

Have the right insurance coverage – Home builders should carry a number of different types of insurance products. Worker’s compensation insurance is required pretty much everywhere, for example. You’ll also need general liability coverage for any property damage that might happen on the job, along with builder’s risk insurance to protect the job site during construction from things such as accidental fires, storms, and more. Professional liability coverage protects you from claims of inferior workmanship, and inland marine insurance protects your equipment while it is being moved to or from a job site.

Stay organized – Software programs and digital tools aren’t just for office jobs. Having the right digital tools can help you keep track of purchases and deductions throughout the year. There’s no need to be a business scrambling to find a printed receipt or invoice anymore, but it likely means you’ll have to invest in the right software and hardware to make it easy. A bonus is that the money you spend to purchase these tools may be deductible.

Planning and preparation – Most home builders work with a range of subcontractors. Getting 1099s organized, tracking vehicle mileage, and staying on top of incidental expenses that pop up can feel like a hassle, but these small issues can pile up and become big headaches if you’re scrambling to make sense of it all on April 10…or April 14. But it’s absolutely critical to get these things in order, because small things that slip through the cracks can lead to fines for non-compliance.

The only thing worse than leaving money on the table by not maximizing deductions is having to pay fines because some issue was overlooked. This can happen even under the best of circumstances, such as when your business experiences rapid growth.

Talk to an accounting or tax professional to learn more about how to best plan for tax time. And give the experts at Rate Insurance a call to discuss insurance coverage for your home building business. With access to a range of commercial insurance products, they can help find you the right coverage at the right price to protect your business.

Disclaimer:

Rate Insurance does not provide tax advice. Talk to your tax advisor for all tax related questions.

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