![]() However, as a result of the TCJA’s passage, until and unless further guidance is issued, gross receipts now also include interest (including tax-exempt interest), dividends, rents, royalties and the amount realized from the sale of a capital or depreciable asset reduced by the taxpayer’s adjusted basis in the asset.ģ. Similar to the pre-TCJA gross receipts test, gross receipts means the total amount of receipts (reduced by returns and allowances), as determined under the taxpayer’s method of accounting, received from all trades or businesses carried on by the taxpayer.Ģ. After the TCJA, Internal Revenue Code (IRC) Section 460 now refers to IRC §448(c) for purposes of determining how to calculate gross receipts.ġ. Under the new tax law, the gross receipts test is slightly more complex. ![]() ![]() In addition, if there was less than 50 percent ownership in the entity, only a proportionate share of the construction-related receipts was required to be included in the calculation. In general, gross receipts from related entities and commonly controlled entities also were required to be aggregated and included in the gross receipts calculation.Gross receipts specifically excluded, among other items, interest, dividends, rents, royalties or annuities not derived in the ordinary course of a trade or business and receipts from the sale or exchange of capital assets.Gross receipts meant the total amount of receipts (reduced by returns and allowances), as determined under the taxpayer’s method of accounting, received from all trades or businesses carried on by the taxpayer.Under the old law, the gross receipts test was determined as follows: Below is a summary of these requirements before and after the TCJA. To verify they meet the gross receipts threshold, taxpayers must determine whether or not receipts from certain related businesses are required to be aggregated. ![]() While greatly increasing the dollar amount of the gross receipts requirement, the new law also has expanded the definition of “gross receipts” for this calculation. As a result, significantly more contractors can take advantage of the small construction contract exception under the TCJA. However, the TCJA increased the gross receipts requirement from $10 million to $25 million of gross receipts for any contract entered into after December 31, 2017. Under pre- Tax Cuts and Jobs Act (TCJA) law, to qualify for the exception, two requirements must have been met: The contract must be entered into by a taxpayer (1) who, at the time the contract was entered into, estimated that the contract would be completed within two years of the contract’s inception and (2) whose average annual gross receipts for the prior three tax years didn’t exceed $10 million.Īfter the TCJA’s passage, there’s no change to the two-year contract estimate requirement to qualify for the exception. Using the taxpayer’s exempt method typically results in a deferral of taxable income compared to the percentage-of-completion method. If the taxpayer qualifies to treat its long-term contracts as “small construction contracts,” the taxpayer may use its exempt method, such as the completed contract method, when calculating taxable income. However, there’s an exception to this requirement provided for certain “small construction contracts.” ![]() Generally speaking, in determining taxable income from long-term contracts, the percentage-of-completion method is required unless a home construction contract is involved. ![]()
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