Relief for Larger Residential Projects
The OBBB expands Section 460 exception from the percentage-of-completion method (PCM). Effective for contracts entered into after July 4, 2025, this change eliminates the prior restriction that limited favorable treatment only to small-scale home construction.
What Is Different Now?
Previously, only projects with four or fewer units could defer revenue recognition until completion. Larger developments such as condominiums or apartment complexes were required to use PCM. Under the new law, residential construction contracts of all sizes now qualify for this exception. This opens the door for high-rise condos, multifamily housing, and other long-term projects.
Subcontractor Eligibility
Although the bill does not explicitly mention subcontractors, it is reasonable to expect that specialty subcontractors may also qualify if at least 80% of their costs are connected to eligible residential work. Trades potentially impacted include:
- Electrical, plumbing, and HVAC
- Roofing, framing, and drywall
- Concrete, foundation, and insulation
- Fire protection, elevators, and finishing trades
Types of Qualifying Projects
The revised rules mean that a wider range of projects may now benefit. Examples include:
- Apartment buildings and condominiums, including high-rise structures
- Townhouse developments and senior living facilities
- Student housing and mixed-use buildings where residential costs are the majority
Why It Matters for Builders and Developers
This expansion provides greater flexibility, improved cash flow, and simpler compliance. By deferring revenue recognition until substantial completion, contractors and subcontractors gain financial breathing room and relief from complex look-back calculations. For many in the industry, this is a long-awaited alignment of tax rules with the realities of large-scale housing development. Reach out to YHB today for more information.
