Spec home accounting for builders
Track each spec home from lot to closing.
Short answer: In spec home accounting, a builder collects every cost of the house, including land, construction and often carrying costs, as inventory on the balance sheet until the sale. At closing, the sale is recorded as revenue, the accumulated cost moves to cost of sales, and the construction loan payoff comes from the closing statement.
During construction
- Each spec home is its own project
- Costs build up in spec inventory
- Loan draws increase the construction loan, not income
- Track interest, taxes, insurance and utilities by house
At closing
- Record the sale from the closing statement
- Move the house cost to cost of sales
- Record the loan payoff, commissions and closing costs
- Compare final margin to budget
Tax questions
Which carrying costs must be capitalized is a tax question with its own rules. Ask your CPA.
Sources
- IRS Publication 538, Accounting Periods and Methods
- 26 U.S. Code ยง 460, long-term contracts (Cornell LII)
Common questions
Are carrying costs part of the house cost?
Often, for tax and for true margin, but the rules are technical. Ask your CPA.
Should each spec be its own company?
Some builders do this for liability reasons. Ask your attorney and CPA.
Can you track our specs?
Yes, by house, every month.
Related
By John Mos, Founder. Updated . We do not give tax or legal advice. Please ask your CPA or attorney.
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