To amend section 118 of the Internal Revenue Code of 1986 to provide exceptions from the rules for determining contributions in aid of construction and from the passive loss rules and to retroactively exempt home construction contracts from the special rules for long-term contracts.

Amends the Internal Revenue Code with respect to the corporate income tax exclusion of contributions to the capital of the taxpayer. Includes as a qualifying contribution any amount of money or property received by a regulated public utility (a utility required to provide electric energy, gas, water, or sewage disposal services) that: (1) is a contribution in aid of construction (as defined by regulations to be promulgated by the Secretary of the Treasury); (2) meets certain expenditure requirements; and (3) is not included in the taxpayer's rate base. Excludes amounts paid as customer connection fees.

Adds conditions under which a taxpayer will be treated as a material participant in a business or trade for purposes of passive loss rules affecting income tax liability.

Amends accounting provisions to: (1) permit an exception from required application of the percentage completion method in the case of certain construction contracts for condominiums or cooperatives; and (2) apply the exemption of residential construction contracts from long-term contract accounting rules retroactively with respect to contracts entered into after February 28, 1986.