Berntson Porter Coronavirus Resource Center Details

BP Blogs

LIKE WHAT YOU READ? Share this article :

Home or Residential Contracts? Do You Qualify for This Tax Deferral Opportunity?


There are great tax deferral opportunities available for contractors who perform home or residential construction projects.  Contractors who otherwise use the accrual percentage of completion method of accounting on long-term contracts can defer 100% of the profit on home construction jobs, such as single family homes and townhouses, and can defer 30% of the profit on residential construction jobs, which includes condos, apartments, military barracks and prisons.  Profit from these jobs can be deferred until the job is complete.

In order to be considered a home construction contract and qualify for 100% deferral, the job must be for dwelling units in buildings containing four or fewer dwelling units, or improvements to real property directly related to and located at the site of the dwelling units.  A residential construction contract that qualifies for the 30% deferral differs only in the fact that the building or buildings being constructed contain more than four dwelling units.  Contracts for the construction of both commercial and dwelling units within the same building will qualify as well, with the taxpayer allocating its costs among the commercial and dwelling units using any reasonable method.

There are proposed regulations which would greatly expand the scope of this exemption by doing two things.  First, it would add language that would treat each unit in a condominium as a separate building, and thus eligible for 100% deferral.  Second, it would make eligible for deferral contracts for the construction of common improvements, such as sidewalks, sewers, roads, and clubhouses, even if the contract is not for the construction of any dwelling unit.  We are actively following these proposed regulations and will report when any progress is made.

There are many contracts that qualify for this deferral that may not strike you as a “home or residential” contract at first glance, such as military barracks and prisons as mentioned above.  Give us a call and do not just assume that your contracts do not qualify for this great tax deferral opportunity.