Custom Homebuilders Subject to Same UNICAP Rules as Spec Builders

A recent court case was decided that may affect many of our clients who work in the homebuilding industry.  The U.S. Tax Court ruled that a custom homebuilder is subject to the uniform capitalization rules in the same way that a speculative homebuilder is.  The Court rejected the taxpayer’s argument that custom homebuilding is centered around sales and marketing, and not production-related services subject to UNICAP.  IRC 263A requires producers of real property to capitalize certain direct costs including direct labor and materials as well as indirect costs allocable to the property produced. Now is a good time to consult with our office regarding 263A calculations and have a year-end planning conversation about this area.

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