Recent tax changes may create planning opportunities for contractors and developers with qualifying residential projects, including apartments, condominiums, and student housing.
- Simpler accounting-method changes: IRS Revenue Procedure 2026-32 allows eligible contractors to automatically change certain accounting methods by filing Form 3115, including changes related to residential contracts and UNICAP capitalization rules.
- Expanded use of the completed contract method: Contractors may use an exempt method, such as the completed contract method, for qualifying residential projects expected to be completed within three years. This applies to contracts entered into for tax years ending after July 4, 2025, and may result in meaningful tax deferral or permanent tax savings.
- AMT relief for qualifying contracts: Eligible residential contracts are exempt from alternative minimum tax recalculations, allowing pass-through owners to defer income under the completed contract method without unexpected AMT or look-back interest implications.
- Different rules by contractor size: Larger contractors generally must capitalize certain indirect costs under Section 263A, while smaller contractors may qualify for an exemption.
- Bonus depreciation coordination: When calculating percentage of completion, contractors generally must disregard bonus depreciation and instead use standard depreciation schedules. This can help prevent accelerated equipment deductions from accelerating taxable contract income.
Contact RKL’s Construction and Real Estate Development experts for help navigating these changes.
