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.

Where Each Party Stands

History