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Industry tax guide

Home builders tax and accounting

Tax planning from land acquisition to closing, lot by lot.

Home Builders business environment

Home builders buy land years before they sell a house, carry development and construction costs on every lot, and depend on financing that ties up cash through the whole cycle.

Taxes follow that cycle. The method used for each contract, the costs assigned to each lot, and the energy credits on homes sold before mid-2026 decide when income is taxed and how much.

Compared with a general business

What makes taxes different for home builders

Completed-contract method

Home construction contracts are exempt from percentage-of-completion, so income is generally reported at closing.

Costs capitalized to lots

Land, development, interest and indirect costs are capitalized to lots and recovered as homes sell.

Common improvement costs

Builders can include estimated future costs of common improvements, such as roads and amenities, in lot basis under an alternative cost method.

Warranty and deposit timing

Customer deposits and warranty reserves follow tax timing rules that differ from the books.

The rules in detail

Tax rules for home builders

Residential contracts and accounting methods

Home and residential construction contracts are exempt from the percentage-of-completion method, so builders can generally use the completed-contract method and report income when each home is finished and sold. From 2025, the exemption covers all residential construction contracts, including multifamily.

Costs capitalized to each lot

Land, development, interest during construction and a share of indirect costs are generally capitalized to the lots they benefit under Section 263A and recovered as homes sell. A sound allocation method keeps the cost of each closing accurate.

45L for homes acquired by June 30, 2026

The new energy efficient home credit, up to $2,500 or $5,000 per home depending on the certification, ended for homes acquired after June 30, 2026. Homes sold or leased by that date can still be claimed on that year's return with Form 8908.

Planning moves

Ways to save tax in home builders

  1. Claim 45L on homes acquired by June 30, 2026

    Certified homes sold or leased by the deadline earn up to $2,500 or $5,000 each.

  2. Use the alternative cost method

    Including future common improvement costs in lot basis reduces gain on early closings.

  3. Allocate costs to lots correctly

    A sound allocation keeps each closing's cost accurate and avoids overstated early profits.

  4. Report income at completion

    Completed-contract reporting matches tax to closings and cash.

  5. Deduct model home and sales costs properly

    Marketing and model home costs are reviewed for current deduction versus capitalization.

  6. Plan land holding in separate entities

    Separating land holding from construction can help with financing, liability and timing.

Working with OICPA

How we help

Service

Claim 45L on homes closed before July 2026

We match certifications to closing dates and file Form 8908 for every eligible home.

Real Estate Tax Planning
Service

Allocate costs to lots correctly

Land, site work and interest spread across phases so each closing carries the right basis.

Property-Level Accounting
Service

Choose the contract method that fits cash

Completed-contract and other methods reviewed for each type of home and contract you sign.

Business Tax Advisory
Service

Plan the next community

Cash, financing and tax projections before you commit to the next land purchase.

Business Advisory

Bookkeeping and reporting

The accounting behind the tax work

Compare remaining project costs with expected closing proceeds before committing cash to additional land or starts.

The operating challenge

Land, site improvements, construction costs, and financing need to stay connected to individual lots or homes throughout a long cash conversion cycle.

The records that matter

Lot cost schedules, construction draws, closing statements, financing records, and project budgets give the review a practical starting point. We identify missing information before recommending changes.

What you can expect

  • A prioritized review of the industry-specific accounting issues above
  • A tailored reporting and document checklist based on your operating records
  • An agreed action plan connecting financial reporting, tax deadlines, and specialist coordination

Frequently asked questions

Can we still claim 45L?

For homes acquired, by sale or lease, on or before June 30, 2026, if they met the energy certification. Homes acquired after that date do not qualify.

When do we pay tax on a spec home?

Generally when the home is completed and sold. Costs are capitalized to the lot until then and deducted as cost of sales at closing.

Is construction interest deductible right away?

Not during construction. Interest on debt used to build homes is generally capitalized to the property and recovered when the home sells.

Related articles

References

  1. 26 U.S. Code § 460: Special rules for long-term contractsLegal Information Institute, Cornell Law School
  2. 26 U.S. Code § 263A: Capitalization and inclusion in inventory costs of certain expensesLegal Information Institute, Cornell Law School
  3. 26 U.S. Code § 45L: New energy efficient home creditLegal Information Institute, Cornell Law School
  4. About Form 8908, Energy Efficient Home CreditInternal Revenue Service

Rules reflect federal tax law as of November 2026.