What is a Residential construction contract under Section 460?

A residential construction contract is a construction contract under Internal Revenue Code Section 460 involving dwelling units and related real property work. OBBBA Section 70430 expanded the percentage-of-completion exception by replacing the prior home construction contract reference with a broader residential construction contract category, bringing larger residential and multifamily projects into Section 460(e) for contracts entered into in taxable years beginning after July 4, 2025. The change also adds a parallel 3-year reference for residential construction contracts that are not home construction contracts, and a conforming Section 56(a)(3) amendment so that the AMT framework tracks the regular tax exception. Builders should review contract terms, cost allocations, accounting method elections, and Depreciation and amortization treatment before changing any of them.

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