Many home builders still are not required to use the percentage of completion method
Article Abstract:
The Tax Reform Act of 1986 (TRA 86) added Section 460 which requires the recognition of long-term revenues over the term of a contract, and limits the use of accounting methods to the percentage completion method or its partial use through the percentage of completion-capitalized cost method. TRA 86 effectively limited the opportunities for deferring income for residential builders. Under the percentage of completion-capitalized cost method, part of the contract is reported under percentage of completion concepts while the rest is reported under the method of accounting previously established by the taxpayer. Exceptions to the percentage of completion method offer contractors opportunities to defer income. The regulations allow many contractors to continue using advantageous accounting methods for part of their contract income.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1989
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Allocating the cost of real estate to maximize depreciation deductions
Article Abstract:
Various techniques are available for allocating costs between land and building components of improved real estate property purchases. The objectives of allocation are to maximize the percentage of costs that can be transferred to depreciable building components. Cost allocation methods are derived for court cases and IRS rulings and are subject to verification and review by the IRS. Appraisal methods include: appraisals by disinterested third parties; market approaches based on actual transactions; cost approaches based on replacement costs; and income approaches based on possible income generated by the property. Cost allocation methods include building residual techniques which value the land component from sales of similar lots, and land residual techniques which value the building component.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1989
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How deductions can be maximized during the construction period of real estate
Article Abstract:
When real estate projects are undergoing construction, proper planning can result in greater tax deductions for the developer. Certain management and organizational costs can be deducted as start-up expenses. Deductible classifications of capital expenses, trade or business costs, interest and taxes paid, and loan costs are discussed. Also briefly discussed is the possibility of tax reforms in the real estate area, including the mandatory use of 30-year lives for depreciation purposes on all real estate expenses.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1986
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