Rev. Rul. 66-247

The costs incurred by a taxpayer in the construction of a house for speculative sale (including the cost of land, but not taxes and carrying charges which the taxpayer has not elected to capitalize under section 266 of the Internal Revenue Code of 1954) should be capitalized regardless of the taxpayer's overall method of accounting. Such costs shall be applied against the amount realized upon the sale of the house for purposes of determining gain or loss in computing taxable income. However, if, under the taxpayer's method of accounting for administrative and selling expenses (such as those incurred in a home office away from any building site and not directly connected with the construction), such expenses are deducted in the year they are incurred or paid, the taxpayer may employ this method insofar as such expenses are concerned if such method clearly reflects income.

In order to change to the method of capitalizing the construction costs, a taxpayer must under section 1.446(e)(3) of the Income Tax Regulations obtain the prior consent of the Commissioner of Internal Revenue by filing an application for change in accounting method on Form 3115, Application for Change in Accounting Method, within 90 days after the beginning of the taxable year in which the change is to be made.