Tax Law Update: Expanded Access to the Completed Contract Method Offers New Opportunities for Residential Builders

A New Advantage for Residential Construction Companies

H.R.1, the One Big Beautiful Bill Act, brings welcome news for residential builders and developers. Beginning with tax years starting on or after July 4, 2025, more companies can now use the Completed Contract Method (CCM) under Section 460 to report income from residential construction contracts.

For finance leaders in the construction industry, this change could mean improved cash flow, simplified tax administration, and strategic opportunities for long-term planning.

Opportunities for CFOs and Construction Leaders

Previously, the CCM was limited to smaller home construction projects involving four or fewer units. Larger-scale developments, such as apartment complexes, condominiums, student housing, and senior living facilities were required to use the Percentage of Completion Method (PCM) or the Percentage-of-Completion Capitalized Cost Method (PCCM), which often accelerated income recognition and added reporting complexity.

Now, the CCM exception has been expanded to include all residential construction contracts, regardless of the number of dwelling units. This means developers and contractors working on multifamily and large-scale residential projects can defer income recognition until substantial completion. This is a major shift that offers meaningful tax deferral and administrative relief.

This expansion opens new avenues for strategic tax planning and cash flow management. Residential builders, developers, and contractors should evaluate:

• Current and future contracts to determine eligibility for the CCM.
• Timing and method changes, including whether a change in accounting method is warranted under the new rules.
• Financial statement impacts, since deferring income can align taxable results more closely with project completion and cash realization.
• Compliance updates, including monitoring forthcoming IRS and Treasury guidance to clarify definitions and transition rules.

Background: Understanding the Completed Contract Method

Section 460 governs how companies account for long-term contracts, typically requiring the use of the PCM to recognize income over the life of the contract. The Completed Contract Method, however, allows taxpayers to defer income recognition until a project is substantially complete, reducing near-term tax burdens and simplifying compliance.

Historically, this method was available only to:

• Small businesses (with less than $31 million in 2025 gross receipts), or
• Home construction contracts (involving four or fewer units).

Under H.R.1, those limitations no longer apply to residential construction, a pivotal change for mid-sized and large developers.

What to Expect Next

While H.R.1 provides clear benefits, implementation details are still evolving. The IRS and Treasury are expected to issue additional guidance outlining how to transition to the CCM and update accounting methods under Rev. Proc. 2015-13 and related procedures.

Keiter recommends that construction CFOs and controllers begin planning now:

• Review active contracts to assess CCM applicability.
• Evaluate the timing for adopting a new accounting method.

Contact your Keiter Opportunity Advisor or our Real Estate & Construction Industry team to discuss how the expanded CCM rules may benefit your upcoming projects.