The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brought sweeping changes to the tax code. Among its many tax provisions, OBBBA expands the use of other accounting methods, including the completed contract method (CCM) of accounting for the construction industry. This long-awaited update provides considerable relief to contractors working on residential projects, enabling better alignment between tax obligations and actual cash flow.
Under the previous law, only certain home construction contracts—generally buildings with four or fewer dwelling units—qualified for the completed contract method. All other long-term construction contracts, including those for apartment complexes, condominium buildings, student housing, and senior living facilities, were required to use the percentage-of-completion method (PCM) or the percentage-of-completion capitalized cost method (PCCM). These methods force contractors to recognize income throughout the life of a project, creating tax liabilities before payments are collected. As a result, firms managing tight cash flow and narrow margins faced ongoing financial pressure.
OBBBA changes that. Beginning with tax years starting on or after July 4, 2025, contractors working on a broader range of residential projects can now use the completed contract method. However, OBBBA’s changes apply only to contracts entered into in tax years beginning after July 4, 2025. Contracts signed before that date will remain subject to prior rules. In addition, the contractor’s size no longer limits this, meaning large and small firms alike may defer income recognition until a project is substantially complete, provided the contract meets the residential definition.
A residential construction contract is defined as one in which at least 80% of the total estimated costs are attributable to qualified residential buildings. The definition of “residential” is broad, encompassing apartment complexes, long-term care facilities, student dormitories, prisons, senior living communities, and mixed-use developments with significant residential components. This expansion opens the door for more contractors, including general contractors and specialty subcontractors, to benefit from favorable tax treatment.
Additionally, OBBBA extends the allowable project duration under the small contractor exception from two years to three years. For 2025, small contractors are defined as those with average annual gross receipts of $31 million or less over the prior three tax years. Contractors that meet this threshold can now use the completed contract method for both residential and non-residential projects expected to be completed within three years.
The ability to defer income until the end of a project offers significant tax and operational advantages. Contractors often face the burden of paying tax on revenue before receiving final payments. By deferring income recognition, contractors can retain more cash during the construction phase. The new rules also simplify compliance by reducing the need for detailed work-in-progress reporting and the complex “look-back” calculations that accompany PCM.
Contractors with qualifying projects should begin evaluating how these changes affect current and future contracts, including how and when to implement new accounting methods. Early planning is key to maximizing the advantages of this new opportunity. Contact your Stephano Slack tax manager or partner at 610-687-1600 or TaxInfo@StephanoSlack.com for personalized guidance tailored to your unique situation.
Author Christine Fisher-Guyer, CPA, Partner, has provided top-notch accounting services to Stephano Slack’s clients. She currently manages tax operations at the firm and is an excellent problem solver, especially regarding client concerns. Chris can be contacted at 610-710-4729 or cguyer@stephanoslack.com
Small Business shutterstock_125338145Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
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