Fair Accounting for Condominium Construction Act

Bill Summary

What this bill does, in plain terms, is tweak a specific part of the federal tax code that governs how builders and developers have to recognize income on multi-year construction projects. Under current law, most long-term construction contracts are taxed using the “percentage-of-completion method” (PCM), which forces a company to recognize a portion of the income each year as the project progresses, even before the project is finished or units are sold. That can create sizable tax bills before cash actually comes in. The code already carves out exceptions, especially for “home construction contracts” and for certain small contractors that finish projects relatively quickly, allowing them to use methods like the “completed-contract method,” which typically defers income recognition until the project is done.

S. 1687, the Fair Accounting for Condominium Construction Act, broadens and adjusts these exceptions. It replaces the narrower term “home construction contract” with “residential construction contract” in the key exception, signaling that the exception should apply not just to traditional single-family homes but also to a broader range of residential projects—explicitly aiming to include condominiums and potentially other multi-unit residential forms. Practically, this change gives more residential builders access to friendlier accounting that can defer taxable income until later, easing cash-flow pressures on projects that can take years to complete and sell through.

The bill also modifies the timetable test used in the small-contractor exception. Existing law ties that exception to meeting certain conditions, including that the contract is expected to be completed within two years. S. 1687 keeps the underlying framework but says that for a “residential construction contract” that is not a “home construction contract” (think condominiums and similar multi-unit residential projects), the two-year completion requirement is treated as three years. Many condo and large multi-family buildings routinely exceed two years due to financing, permitting, and construction complexity; moving that threshold to three years makes it much more likely those projects can qualify for the exception.

Importantly, the bill aligns the Alternative Minimum Tax (AMT) rules with these changes. Current AMT provisions already recognize an exception for home construction contracts; the bill updates that reference so that the broader “residential construction contract” category also benefits under AMT. That spares eligible builders from having to keep two different sets of books for regular tax and AMT on the same project, reducing complexity and avoiding AMT add-backs that would otherwise claw back the benefit of the exception.

There is also a bit of technical cleanup and renumbering in Internal Revenue Code section 460(e) to reflect the new terminology and definitions. The effective date is prospective, applying only to contracts entered into after enactment, so it does not retroactively change tax treatment for older contracts.

In policy terms, the intent is straightforward: facilitate the financing and construction of condominiums and other multi-unit residential buildings by letting developers and builders defer income recognition until closer to when they actually receive cash, thereby improving project cash flow and reducing the risk and cost of capital. Supporters argue this could unlock more residential supply—especially condos, which have lagged in many markets—by smoothing taxes and compliance burdens that can otherwise bite early in a project’s life. Opponents may argue that it is a targeted tax preference that mainly benefits developers, shifts revenue out of near-term budgets, and may encourage aggressive income deferral strategies without guaranteeing affordability or tenant protections.

The bill does not change the existing gross receipts eligibility test for the small-contractor exception or the overarching long-term contract rules beyond the specific residential changes. Treasury and IRS guidance would likely be needed to clarify the exact scope of “residential construction contract” (how it interfaces with existing definitions of dwelling units, appurtenances, mixed-use projects, and condo regimes) and to prevent abuses through contract structuring. Still, the core effect is to broaden who can avoid percentage-of-completion accounting in residential building and to extend the permissible project duration from two to three years for non-home residential projects so that more condo and multi-family builds qualify.

Pros

Could modestly increase the supply of condominiums and multi-family housing by easing cash-flow constraints, supporting broader affordability goals in high-cost urban markets.
Targets a clear friction—tax recognition before cash arrives—that can stall residential projects, complementing other housing supply-side measures like zoning reform and financing support.
Administrative alignment with AMT reduces compliance costs and complexity for builders, particularly smaller and mid-sized firms that lack large tax departments.
By widening eligibility from “home” to “residential,” the bill better reflects modern housing needs, including denser, climate-friendly, transit-oriented developments.
Prospective-only effective date limits disruption and revenue surprises related to existing contracts, helping budget planning.
Could reduce financing costs as deferred tax obligations improve project pro formas and lower required equity, potentially enabling mixed-income or workforce housing components.
Provides a bipartisan, low-regulatory lever to spur private-sector construction without direct federal outlays.

Reduces tax and compliance burdens by broadening exceptions to percentage-of-completion accounting, improving cash flow for builders and encouraging private-sector housing production.
Market-oriented approach to the housing shortage: empowers builders through tax timing relief rather than new subsidies or mandates.
Aligns AMT treatment with the general rule, simplifying bookkeeping and reducing the risk of surprise AMT liabilities.
Extending the project-duration test to three years for qualifying residential builds reflects real-world construction timelines and mitigates penalizing longer, more complex projects.
Prospective implementation ensures predictability and respects existing contracts and business planning.
Nudges capital toward residential construction (especially condos) without picking winners among specific firms or projects via discretionary grants.
Minimal federal bureaucracy required; uses the tax code’s existing framework with a targeted adjustment.

Cons

Delivers a tax timing benefit primarily to developers without any affordability, labor, or tenant-protection conditions; no assurance that savings translate to lower prices or more affordable units.
Near-term federal revenue loss (from deferral) could crowd out funding for direct housing assistance, vouchers, or public housing investments that target low-income households more directly.
Expands a tax preference that may be used by large, well-capitalized builders if they can structure around gross receipts thresholds, raising fairness and equity concerns.
Risk of aggressive accounting and contract-splitting to qualify projects, increasing enforcement burdens on the IRS without added resources.
Does not address other binding constraints (local zoning, insurance costs, interest rates, materials), so effects on affordability could be modest or uneven.
Narrow scope: focuses on condos and residential accounting rather than comprehensive housing policy (e.g., LIHTC expansion, voucher reform, or preservation of existing affordable stock).
Potential for geographic inequity: markets with strong condo demand may benefit more than areas focused on rental or single-family housing.

Creates another carve-out in the tax code rather than broad-based simplification of construction accounting rules; some would prefer a more uniform rollback of percentage-of-completion requirements.
Provides only timing relief, not rate reduction; benefits may be limited in high-interest or high-regulatory-cost environments.
Three-year threshold might still be too tight for very large, phased residential projects; broader reform might be warranted.
Potential for boundary disputes and IRS guidance battles over what qualifies as a “residential construction contract,” adding uncertainty in the near term.
Revenue deferral could complicate efforts to achieve fiscally neutral tax reform or to prioritize across-the-board rate cuts.
Does not address local regulatory barriers (permitting, zoning) that many Republicans see as the primary impediments to new housing supply.
May be seen as favoring condo development relative to other property types, rather than letting the market decide entirely free of tax distortions.

This bill was introduced on May 08, 2025 in the Senate.

View on Congress.gov:
https://www.congress.gov/bill/119th-congress/senate-bill/1687

May 08, 2025

Read twice and referred to the Committee on Finance.
May 08, 2025

Introduced in Senate

10000

This bill has not yet been enacted into law.

Fair Accounting for Condominium Construction Act

Bill Summary

Pros

Cons

Introduction

History

Read twice and referred to the Committee on Finance.

Introduced in Senate

Laws Enacted

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