Which statement about row houses and townhouses under IRS 460 is accurate?

Which statement about row houses and townhouses under IRS 460 is accurate?

• A. They are included as single dwelling units
• B. They are considered separate dwellings and excluded from IRC 460
• C. They are treated the same as apartments
• D. They are never considered dwellings

Answer: (B)

Under this rule, long-term construction contracts for real estate are usually accounted for using a percentage-of-completion method, but there are important exclusions when the project results in multiple separate dwelling units that can be sold individually. Row houses and townhouses fit that situation because each unit is a separate dwelling that can be sold on its own. Because of this, each unit is treated as its own dwelling and falls outside the scope of the long-term contract rules in IRC 460. In other words, the project isn’t treated as one single long-term contract; instead, the sale of each townhouse or row house is handled as a separate dwelling transaction for tax purposes. This is different from apartments, which are typically part of a single multi-unit project and generally remain subject to the long-term contract rules.

Under this rule, long-term construction contracts for real estate are usually accounted for using a percentage-of-completion method, but there are important exclusions when the project results in multiple separate dwelling units that can be sold individually. Row houses and townhouses fit that situation because each unit is a separate dwelling that can be sold on its own. Because of this, each unit is treated as its own dwelling and falls outside the scope of the long-term contract rules in IRC 460. In other words, the project isn’t treated as one single long-term contract; instead, the sale of each townhouse or row house is handled as a separate dwelling transaction for tax purposes. This is different from apartments, which are typically part of a single multi-unit project and generally remain subject to the long-term contract rules.