Does a small job that crosses December automatically require percentage-of-completion reporting?
Crossing December can make a construction agreement a long-term contract, but it does not automatically require the percentage-of-completion method.
By AE Tax Advisors Team · Updated October 28, 2026
Crossing December can make a construction agreement a long-term contract, but it does not automatically require the percentage-of-completion method. Section 460 contains exceptions, including qualifying home-construction contracts and certain other construction contracts meeting the completion-period and small-business tests. An exception still requires a permissible, consistently applied method.
A specific business-owner situation
An electrical business starts a short warehouse project in November and finishes in February. The owner assumes crossing the calendar year requires a new accounting system for every job.
Illustrative example, not a client result.
What to establish before filing
- Classify the construction activity.
- Test the relevant receipts and expected completion requirements.
- Compare the proposed method with prior returns.
Which fact changes the answer?
Expected completion time at contract inception and the statutory gross-receipts test are separate requirements for the small-contractor exception. Related entities can affect the receipts calculation.
A mistake to avoid
Small contract value alone does not establish eligibility for the exception.
Records that support the decision
- Signed scope and expected schedule.
- Gross-receipts aggregation workpaper.
- Existing tax-method documentation.
The decision to document
Determine eligibility before choosing the method, then document any accounting-method change procedure needed.
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Related questions
- We bought materials in December for a job starting next year. Do they reduce this year's contract income?
- Our estimated construction costs increased sharply. Do we revise prior completion percentages?
Sources and editorial context
- Section 460: long-term contracts
- Treasury regulation 1.460-1: contract classification and completion
- Treasury regulation 1.460-5: contract costs
- Treasury regulation 1.460-4: contract revenue and estimates
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.