Tax Code Update: Residential Construction Accounting Rules Shifted, 3-Year Exemption Window Set

This bill tweaks the tax rules for how certain construction companies account for their income, specifically targeting residential projects that aren't single-family homes.

Shuffling the Accounting Deck

The core change involves updating Section 460 of the Internal Revenue Code. It swaps out the term "home construction contract" for the broader "residential construction contract." More practically, for these specific residential projects (think apartment buildings or condo complexes, not typically detached houses), it adjusts an exception to a common accounting rule called the "percentage of completion method." Currently, some contracts get an exemption if the project is expected to take two years or less. This bill extends that window, offering the exemption if the project is estimated to be completed within three years.

Who Sees the Difference?

This is mostly an inside-baseball change for the construction industry and their accountants. It aims to adjust how income and expenses are reported for tax purposes on multi-year projects. For a construction company building a mid-rise condo building, extending the exemption timeframe from two to three years might offer more flexibility in how they recognize revenue, potentially simplifying their tax accounting if their project timeline fits this new window. However, it's a technical shift; homebuyers or renters aren't likely to notice any direct impact. The change applies only to contracts signed after this bill becomes law.