The new One Big Beautiful Bill (OBBB) delivers a major tax break for builders and developers of residential housing. It changes the tax rules so that more residential construction projects can delay paying taxes on their income until the project is finished.
What Was the Old Rule?
Previously, only home construction contracts—typically single-family homes or small buildings with four or fewer units—could delay recognizing income until the project was completed. Larger residential projects, like apartment buildings or condos with more than four units, had to report income as the work progressed, even if they hadn’t yet been paid.
What’s New?
The OBBB expands this tax benefit to include residential construction contracts, even for larger buildings with more than four units. Now, these projects can also delay recognizing income until the project is complete. There are two ways to qualify:
- Residential construction contracts (as newly defined) automatically qualify for the exception—no revenue or duration test required.
- Alternatively, construction contracts (not necessarily residential) can qualify if the contractor’s average annual gross receipts are under $31 million and the contract is expected to be completed within three years (an increase from the previous two-year limit).
In addition, specialty subcontractors may also qualify—if more than 80% of their contract costs are tied to work on qualifying residential construction projects.
What May Qualify as a Residential Construction Contract?
The following are examples of projects that may qualify as residential construction contracts under the new rules. Each project must be evaluated based on its specific facts and circumstances:
- Apartment buildings with more than four dwelling units
- Condominium complexes
- Townhouse developments
- Senior living facilities (if primarily residential in nature)
- Student housing (if structured as residential units)
- Mixed-use buildings where the residential portion constitutes the majority of construction costs
What Types of Subcontractors May Qualify?
Subcontractors whose work is primarily tied to these types of residential projects may also qualify for the exception. Examples of potentially eligible trades include:
- Electrical contractors
- Plumbing and piping contractors
- HVAC and mechanical systems installers
- Framing and drywall contractors
- Roofing and insulation specialists
- Concrete and foundation subcontractors
- Fire protection and sprinkler system installers
- Elevator and lift system contractors
- Finish carpentry and cabinetry trades
- Flooring, tile, and painting subcontractors
As with general contractors, subcontractor eligibility depends on whether at least 80% of their contract costs are attributable to qualifying residential construction activities. A detailed analysis should be performed to confirm applicability.
Why This Matters
This provision offers a long-overdue and well-deserved tax incentive to the residential construction industry. By aligning tax recognition with project completion, it provides:
- Improved cash flow during the construction phase
- Administrative relief from complex tax accounting methods
- Broader eligibility that includes both general contractors and qualifying subcontractors
This change reflects a practical and meaningful recognition of the financial realities of residential construction and offers tangible benefits to those building and supporting the nation’s housing infrastructure.
Kreischer Miller’s Tax Strategies Team is Here to Help Construction Contractors Navigate the One Big Beautiful Bill
With the passage of one of the largest pieces of tax legislation in years, our tax professionals stand ready to help you understand the provisions and how they will impact you and your construction business.
If you have any questions about this legislation or any other tax matters, please contact your Kreischer Miller relationship professional or any member of our Tax Strategies team.