The IRS has issued Revenue Procedure 2023-09, providing new rules and conditions for implementing the Alternative Cost Method, the optional safe harbor method of accounting for real estate developers to determine when common improvement costs may be included in the basis of individual units in a real property development project to determine the gain or loss from sale of those units. This revenue procedure treats the Alternative Cost Method as a method of accounting. Under the Alternative Cost Method, a developer includes the share of the estimated cost of common improvements allocable to the units sold in the basis of such units regardless of whether the costs have been incurred under § 461(h), subject to certain limitations. This revenue procedure also provides guidance on the application of the Alternative Cost Method to contracts accounted for under § 460 of the Code and the regulations thereunder.
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