The new tax law expands CCM eligibility for residential developers, improving cash flow
and tax planning for projects with more than four units.
Among the One Big Beautiful Bill Act’s most impactful provisions for residential developers is the expanded eligibility to use the Completed Contract Method (CCM) for projects involving more than four dwelling units.
This change has the potential to significantly influence cash flow management, tax planning, and financial strategy. Understanding the implications and leveraging professional accounting experience will be essential to fully capitalize on this opportunity.
Understanding accounting methods:
PCM vs. CCM
Historically, large-scale residential construction contracts were subject to the Percentage of Completion Method (PCM), which requires revenue and expenses to be recognized as work progresses.
While PCM offers a continuous financial snapshot, it often results in taxable income being recognized before a project is completed or is able to generate substantial cash flow. The CCM, by contrast, allows deferral of all revenue and expenses until the project reaches substantial completion and acceptance.
Previously, CCM was limited to home construction contracts involving four or fewer dwelling units or to small contractors under a specific gross-receipts threshold. Some residential contracts were subject to a 70/30 method, where 70% had to follow PCM and 30% could use another permissible method.
Tax opportunities for real estate developers
Deferring income recognition until project completion can delay tax liability, improving capital retention, liquidity, and reinvestment capacity during construction.
CCM also simplifies accounting by eliminating the need for continuous progress estimation, reducing administrative complexity and potential errors.
Strategic use of CCM allows developers to better manage income timing, potentially mitigating the impact of concentrated income recognition and enhancing overall tax positions.
Navigating the PCM to CCM transition
While CCM offers clear benefits, transitioning from PCM requires careful planning and compliance. Entities must file Form 3115 to request a change in accounting method with the IRS.
A precise understanding of the new tax law’s definition of “residential construction contract” is imperative for proper application.
Financial modeling can illustrate how CCM impacts cash flow, tax liability, and investment potential. Anticipating income recognition upon project completion allows for better long-term tax planning.
How CLA can help
CLA’s tax and real estate professionals can help you assess eligibility for the CCM under the One Big Beautiful Bill Act, model its financial impact, and guide you through a compliant transition from PCM.
We provide strategic tax planning tailored to your portfolio, helping you enhance cash flow, manage income recognition, and align your accounting approach with long-term business goals.
Be sure to review our article for additional tax law changes not covered here.