Has UNICAP 263a changed for small business construction under TCJA? Building self-constructed assets

Thanks for explaining this. I'm also in construction (remodeling) and wonder if this applies to spec homes I build too? And if I'm exempt from 263A, does that mean I can just expense things like my truck, office costs, and administrative salaries immediately rather than adding them to my basis?

For spec homes, yes, the small business exemption would apply to those self-constructed assets as well, assuming you meet the gross receipts test. Regarding trucks, office costs, and salaries - being exempt from 263A means you don't have to capitalize certain indirect costs that would otherwise be required under UNICAP rules. However, this doesn't change other provisions of the tax code. Your truck would still be depreciated according to normal rules (potentially with bonus depreciation or Section 179 if eligible), office expenses that are ordinary and necessary would be deductible, and salaries for administrative staff working on general business matters could be expensed. But direct labor costs for employees actually building the homes would still need to be capitalized to the basis of each property.

How detailed was their analysis? Did they just tell you "you're exempt" or did they actually go through and help categorize specific costs like materials, labor, permits, etc.?

I'm skeptical about AI tax tools. Did it give you documentation you could rely on if audited? Construction is complicated with mixed direct/indirect costs, and UNICAP has always been a mess to navigate.

They provided a very detailed analysis that went through each category of expenses - not just a blanket "you're exempt" statement. They broke down which direct construction costs still needed capitalization even with the exemption, and which indirect costs I could now expense thanks to the TCJA changes. Yes, they absolutely provided documentation I could rely on if audited. Their analysis included specific citations to the tax code and TCJA provisions, plus explanations of how these applied to my particular situation with mixed costs. It was actually more thorough than what my previous accountant had provided.

Wait so this service just gets someone at the IRS to actually answer their phone? How does that even work? The IRS never picks up when I call.

I don't believe this for a second. Nobody can magically get through the IRS phone system. They're just going to take your money and you'll still be waiting on hold forever.

They use a system that monitors the IRS phone lines and holds your place in queue, then calls you when they have an actual person on the line. It's not magic - just smart technology that saves you from having to personally wait on hold for hours. The service definitely works. I was connected with an actual IRS agent who specializes in business tax issues within about 2 hours (versus the days I'd spent trying on my own). The agent confirmed the UNICAP exemption details and gave me the citation numbers I needed for my documentation.

Thanks for bringing this up! My friend is actually planning to hold about 30% of the units for rental income while selling the rest. Would the 163(j) election make sense in his situation? And would the UNICAP exemption still apply to the rental portion?

For a mixed property scenario like that, the election could make sense if the interest expense is significant, but it's a complex analysis. The 163(j) limitations apply at the entity level, so if the same entity is holding both the for-sale and for-rent properties, you'd need to consider the total interest expense picture. The UNICAP exemption would still apply to both portions as long as the business meets the gross receipts test. However, the accounting gets tricky - you'll need to allocate costs properly between the for-sale and for-rent portions, and different depreciation rules may apply depending on your elections. This is definitely a situation where professional guidance is worthwhile.

This! We grew just over the threshold last year and scrambling to recreate detailed cost allocations was a nightmare. Wish we'd maintained better records from the start.

Thanks for mentioning the Section 461(l) limitations - that's a crucial point many people overlook! I've seen several contractors get excited about being able to expense more costs upfront due to the UNICAP exemption, only to get hit with the business loss limitations later. The interaction between these rules can really catch you off guard, especially in the first few years when you're still building up your business and might have legitimate losses from startup costs and equipment purchases. Do you know if there are any specific strategies for managing this timing issue, or is it just a matter of careful planning around the loss limitation thresholds?