Tax Consequences of Developers' Future Improvement Costs

Document Type



Published in The CPA Journal, volume 64 issue 10, 1994. Bryant users may access this article here.


New York State Society of Certified Public Accountants

Publication Source

The CPA Journal


Under certain conditions, real estate developers may deduct estimated future costs in a current year. The tax treatment of future improvement costs has been in a state of flux, but with the issuance of Revenue Procedure 92-29, the IRS has eliminated the confusion. For sales of property after 1992, developers may use either the "general method" or the "alternative-cost method" in accounting for common improvements: streets, sidewalks, sewers, playgrounds, clubhouses, tennis courts, and swimming pools. A discussion and comparison of the 2 methods and a series of 5 examples show that the general method and the alternative-cost method can vary significantly in result.