Build Apartments or Spend on R&D? The IRS Just Made Two Accounting Changes Easier to File

Change number 275. That’s the new line item the IRS added for builders of apartment buildings and condos, and it sits inside Rev. Proc. 2026-32, which appeared in the Internal Revenue Bulletin on Sept. 21 ^[1]. The same procedure loosens the paperwork for businesses that spend money on research and development ^[1]. If you build multifamily housing, or you pay engineers and developers to create something new, this one is worth ten minutes.

Here’s the short version: two kinds of accounting switches that used to need either special permission or careful timing can now go through the IRS’s automatic process, and a couple of transition dates arrive this fall ^{[1, 3]}.

What changed

An “accounting method change” is the formal way you tell the IRS you’re changing when you count income or deductions. You do it on Form 3115. The automatic version means the IRS’s consent comes with filing the form under its published conditions, instead of through a request to its national office ^[1]. Rev. Proc. 2026-32 rewrites two sections of the IRS’s master list of automatic changes, Rev. Proc. 2025-23 ^[1].

On research costs. A quick refresher. For tax years beginning after 2021, the 2017 tax law made businesses capitalize research and experimental costs and deduct them over five years for domestic research, or 15 years for foreign research ^[1]. The 2025 tax law, P.L. 119-21, added Section 174A, which lets you deduct domestic research costs right away for tax years beginning after 2024; foreign research stays on the 15-year schedule ^[1].

The new procedure changes four things for research costs ^{[1, 3]}:

• The five-year lockout is waived longer. Normally you can’t make an automatic change for the same item twice within five years. That waiver now runs for any tax year beginning before Jan. 1, 2028; earlier guidance limited it to certain changes for 2025 ^{[1, 2]}.
• Back-to-back fixes are allowed. You can correct a research-cost method even if the wrong method was used only in the prior year ^{[1, 2]}.
• The catch-up timing is tied together. If you fix a 2022-2024 method and also use the “recovery of unamortized amount” method, which deducts leftover capitalized costs either all at once or over two years, any positive catch-up adjustment follows that same one- or two-year schedule ^{[1, 3]}.
• Foreign research changes stay open past 2025. The IRS deleted the cutoff that limited them to tax years beginning before 2026 ^{[1, 3]}.

On construction. The percentage-of-completion method means reporting income as a job progresses, not when it’s done. Home construction contracts, meaning buildings with four or fewer units, have long been exempt from it ^[1]. Other residential contracts, like a 12-unit apartment building, were stuck with a 70/30 hybrid ^[1]. The 2025 law extended the home construction exemption to all residential construction contracts entered into in tax years beginning after July 4, 2025, and repealed the hybrid ^[1]. Rev. Proc. 2026-32 gives builders the automatic route to get there ^[1].

Does this apply to you?

The research changes reach any business that spends on qualifying research. The construction changes reach anyone signing residential contracts. Two hypotheticals show how it sorts out.

A hypothetical software firm. It capitalized its U.S. developers’ wages under the old five-year rule for 2022 through 2024, but it made a mistake in 2023. Under the new procedure, it can fix that through the automatic route even if it already filed a research-cost change in the past five years, as long as the year of change begins before 2028 ^{[1, 2]}. If it makes the fix for 2025 and, in the same year, elects to deduct the leftover capitalized amounts all at once, the positive adjustment from the fix lands in 2025 too ^[1].

Grant Thornton flags the tradeoff: under the old procedures, some businesses could spread that positive adjustment over four years while taking the leftover deduction up front ^[2]. That’s why the IRS lets businesses that filed the duplicate Form 3115 by Nov. 15 pick old or new ^[1].

A hypothetical residential builder with a calendar tax year. A calendar-year business’s 2026 tax year is its first one beginning after July 4, 2025, so the new exemption reaches contracts it signs in 2026 or later ^[1]. Say it signs a 12-unit condo contract this year:

• If this is its first residential construction contract, it just adopts an exempt method. That isn’t a method change, and no Form 3115 is needed ^[1].
• If it already used percentage-of-completion or the hybrid for such contracts, it files under DCN 275 to switch to an exempt method, on a cut-off basis, meaning only contracts signed on or after the first day of the year of change ^[1].
• If it is a small business that meets the gross receipts test and expects the job to finish within the IRS’s time limit (two years for home construction contracts, three for other residential contracts), it can also stop capitalizing overhead under Section 263A using DCN 236 ^{[1, 3]}.

A builder that doesn’t meet those small-business conditions must start capitalizing costs under Section 263A on those contracts ^{[1, 2]}. The Form 3115 for these construction changes is short: the identification and signature sections, Part I, Part II except line 16, Part IV line 25 and Schedule D, Part I ^[1].

Already filed? If you filed a return on or before Sept. 21 for a tax year beginning after July 4, 2025, and properly used the new residential methods, the IRS treats you as having followed the change procedures ^[1].

What to do now

Grant Thornton’s advice was blunt: “Make a quick (but well-informed) decision.” ^[2] Calendar-year C corporations on extension file by Oct. 15, the firm noted, and the modeling takes time ^[2].

If you mailed a duplicate Form 3115 under the old procedures and want the new ones, you have to resubmit it to the IRS in Ogden, Utah, with this line at the top of page 1: “FILED UNDER REV. PROC. 2026-32, AS PROVIDED IN SECTION 6.02(2)(b) OF REV. PROC. 2026-32” ^[1]. If you’re happy with the old version, you don’t resubmit ^[1].

One more thing to ask about: your state. Some states have decoupled from the federal research deduction, and some want their own consent or notice ^[2].

What I’m keeping an eye on

Oct. 21, 2026. Businesses with a non-automatic research or construction request pending at the IRS national office on Sept. 21 can convert it to the automatic route by telling the office before the later of Oct. 21 or the date a ruling comes out, and the user fee comes back ^[1].

Nov. 15, 2026. After this date, a research-cost or small-builder change filed the old way no longer gets to choose between the two sets of rules ^{[1, 3]}.

— Sally