A homebuilder could apply the percentage-of-completion method for income deferred under the completed-contract accounting method, based on completion of the development rather than on the sale of individual homes.
This item discusses the distinction between residential and nonresidential property, depreciation, and the application of the change-in-use regulations if a rental property changes from residential use to nonresidential or vice versa.
Owners of real estate should consider the implications of the new regulations regarding tangible property and repair costs when engaging firms to perform cost-segregation studies.
A homebuilder’s home construction contracts are exempt from the long-term contract provisions of Sec. 460 and so are not subject to the percentage of completion method for regular tax or AMT purposes or to the lookback rules for either regular tax or AMT purposes. Further, a home construction contract is exempt from the cost allocation rules of Sec. 460.