The project is usable, but punch-list work remains. Is the contract complete for tax?
A tax completion date is not necessarily the final invoice date or the date the last small defect is corrected.
By AE Tax Advisors Team · Updated October 28, 2026
A tax completion date is not necessarily the final invoice date or the date the last small defect is corrected. The long-term contract regulations provide completion tests tied to use, incurred allocable costs and final completion and acceptance. Substantial remaining work must be distinguished from routine closeout activity.
A specific business-owner situation
A customer begins operating in a completed facility in December. Minor paint and trim work continues in January. The contractor cannot choose the later year solely because a punch list remains open.
Illustrative example, not a client result.
What to establish before filing
- Identify when the customer could use the subject matter.
- Apply the regulatory completion tests.
- Separate disputed acceptance from minor corrective work.
Which fact changes the answer?
Remaining work that materially prevents intended use differs from inexpensive finishing tasks after operational use. Both the nature and amount of unfinished work matter.
A mistake to avoid
Do not use the release of retainage as the sole completion test.
Records that support the decision
- Occupancy and acceptance records.
- Punch-list detail and costs.
- Contract closeout correspondence.
The decision to document
Support the tax completion date with project facts, then coordinate final revenue and any look-back obligations.
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Related questions
- A job was canceled and we moved its materials to another job. Can we deduct the old job's full costs?
- Our completed project's final costs changed later. Do we need a look-back interest calculation?
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.