Is the Current Tax Bill Good or Bad for Building Materials?

The NLBMDA recently shared a message with members that distills the most relevant bits of the 549-page tax bill currently wending its way through the Senate. While the bill is not yet finalized, a collection of new proposed rules, regulations and provisions that would impact the LBM industry are listed below.

Full Expensing (100% Bonus Depreciation)

One of the most significant provisions for LBM dealers in the 2017 Tax Cuts and Jobs Act (TCJA) was the establishment of 100% bonus depreciation for qualified property placed into service between 2017 and 2026. The provision significantly reduces a business’s tax liability in the purchase year. 

Beginning in 2022, 100% bonus deprecation began a 5-year phase out with the bonus percentage decreasing by 20% each year.

House Version:

H.R. 1 retroactively reinstates 100% bonus depreciation for qualified property placed in service after January 19, 2025. Under the bill, a business would be able to take advantage of full expensing until January 1, 2030.

Senate Version:

Like the House bill, the Senate tax bill retroactively reinstates 100% bonus depreciation for qualified property placed in service after January 19th, 2025. However, the Senate bill makes full expensing permanent, full expensing would be permanent tax policy, a change NLBMDA has strongly advocated for.

Section 199A

TCJA created the Section 199A deduction to ensure small business tax rates remain in line with the corporate tax rate which was lowered in TCJA. The deduction is a vital tax tool for millions of small businesses, including LBM dealers, and is set to expire at the end of this year if Congress fails to act.

House Version:

The House bill makes the Section 199A deduction permanent and raises the deduction from 20% to 23%.

Senate Version:

The Senate tax package also proposes making the Section 199A deduction permanent. However, unlike the House bill, the Senate proposes keeping the deduction level at 20%, a measure likely done to secure savings for other provisions such as permanent full expensing.

Estate Tax Reform

Sen. John Thune signaled early on that the Senate was unlikely to include language that would permanently repeal the estate tax. Identical to the House bill, the Senate tax package raises the exemption from $13.99 million to $15 million, adjusted for inflation thereafter. If Congress fails to act, the exemption would be reduced in half to pre-TCJA levels.

State and Local Tax (SALT) Deduction

Earlier this year, the NLBMDA wrote that SALT is likely to be the most contentious provision debated among Congressional Republicans. Recent rhetoric between House and Senate Republicans has proven this prediction to be true. The SALT deduction is a valuable tool for LBM dealers living in high-tax states like New York, Connecticut and California; however, the deduction has received pushback from lawmakers who represent states with low to no state income tax.

House Version:

The House version increases the SALT cap from $10,000 to $40,000 with new limits included for taxpayers making over $500,000.

Senate Version:  

Senate lawmakers are still debating a cap on SALT, and as a result the Senate bill includes placeholder text that would keep the SALT deduction at $10,000. This move has already prompted criticism from House Republicans in high-tax states, who warned the legislation would be “dead on arrival” if the cap remains unchanged.

Housing Tax Credit

In 2018, Congress passed a four-year 12.5 percent increase of the 9 percent LIHTC credit, a highly competitive tax credit that supports new home construction. The 12.5 percent increase expired in 2021, and NLBMDA has advocated for the return of the 12.5 percent increase.

House Version:

The House bill would restore the 12.5 percent Housing Credit allocation increase for 2026 – 2029, a key step toward delivering more affordable housing in the United States. This legislation would lower the PABs threshold test to 25 percent for obligations made after December 31, 2025, and before January 1, 2030. This measure would result in more LIHTC construction through allowing states to stretch their bond authority while also reducing competition for the 9 percent credit. It is estimated that the House passed policies would lead to the creation and preservation of 527,000 homes over the next decade.

Senate Version:  

The Senate tax package proposes a new 12 percent House Credit allocation increase that would be permanent. Similar to the House bill, the Senate proposes lowering the bond test threshold from 50 percent to 25 percent. Economic forecasters have estimated that the revised Senate language would double the projected impact over the next decade to over 1 million new affordable homes.

Next Steps

Senate tax writers are expected to change portions of this tax bill as it works to coalesce support among different factions within the Republican party. Most of the changes are expected to be centered on provisions related to Medicaid, SALT, and the phase out Inflation Reduction Act tax credits. Senate Majority Leader John Thune (R-SD) has committed to the Senate voting on its reconciliation bill by next week. If passed, differences in the House and Senate version must be reconciled, after which a final bill can be passed by both chambers and delivered to the President for signing.

Congress has set a self-imposed deadline of July 4 to get all of this done. Washington insiders have cast doubt over the aggressive pace, though Republican leadership say they remain committed to meeting this deadline. NLBMDA says it will continue to closely monitor the progress of this legislation and will continue actively engage lawmakers to ensure key LBM priorities make it to the President’s desk.