diff --git a/TestAssets/TestProjects/TestApp/project.json b/TestAssets/TestProjects/TestApp/project.json
index 5fd2a8c4f..325f56373 100644
--- a/TestAssets/TestProjects/TestApp/project.json
+++ b/TestAssets/TestProjects/TestApp/project.json
@@ -1,11 +1,12 @@
 {
     "version": "1.0.0-*",
     "compilationOptions": {
-        "emitEntryPoint": true
+        "emitEntryPoint": true,
+        "preserveCompilationContext": true
     },
 
     "dependencies": {
-        "TestLibrary": { "target":"project"},
+        "TestLibrary": { "target":"project", "version":"1.0.0-*" },
 
         "NETStandard.Library": "1.0.0-rc2-23810"
     },
diff --git a/TestAssets/TestProjects/TestAppWithTransitiveAppDependency/Program.cs b/TestAssets/TestProjects/TestAppWithTransitiveAppDependency/Program.cs
new file mode 100644
index 000000000..b1520563c
--- /dev/null
+++ b/TestAssets/TestProjects/TestAppWithTransitiveAppDependency/Program.cs
@@ -0,0 +1,17 @@
+// Copyright (c) .NET Foundation and contributors. All rights reserved.
+// Licensed under the MIT license. See LICENSE file in the project root for full license information.
+
+using System;
+using System.Diagnostics;
+
+namespace TestApp
+{
+    public class Program
+    {
+        public static int Main(string[] args)
+        {
+            Console.WriteLine(TestLibrary.Helper.GetMessage());
+            return 0;
+        }
+    }
+}
diff --git a/TestAssets/TestProjects/TestAppWithTransitiveAppDependency/project.json b/TestAssets/TestProjects/TestAppWithTransitiveAppDependency/project.json
new file mode 100644
index 000000000..645f29a2c
--- /dev/null
+++ b/TestAssets/TestProjects/TestAppWithTransitiveAppDependency/project.json
@@ -0,0 +1,16 @@
+{
+    "version": "1.0.0-*",
+    "compilationOptions": {
+        "emitEntryPoint": true
+    },
+
+    "dependencies": {
+        "TestLibraryWithAppDependency":  { "target":"project", "version":"1.0.0-*" },
+
+        "NETStandard.Library": "1.0.0-rc2-23808"
+    },
+
+    "frameworks": {
+        "dnxcore50": { }
+    },
+}
diff --git a/TestAssets/TestProjects/TestLibraryWithAppDependency/Helper.cs b/TestAssets/TestProjects/TestLibraryWithAppDependency/Helper.cs
new file mode 100644
index 000000000..b24d91ae4
--- /dev/null
+++ b/TestAssets/TestProjects/TestLibraryWithAppDependency/Helper.cs
@@ -0,0 +1,24 @@
+// Copyright (c) .NET Foundation and contributors. All rights reserved.
+// Licensed under the MIT license. See LICENSE file in the project root for full license information.
+
+using System;
+
+namespace TestLibrary2
+{
+    public static class Helper
+    {
+        /// <summary>
+        /// Gets the message from the helper. This comment is here to help test XML documentation file generation, please do not remove it.
+        /// </summary>
+        /// <returns>A message</returns>
+        public static string GetMessage()
+        {
+            return "This string came from the test library!";
+        }
+
+        public static void SayHi()
+        {
+            Console.WriteLine("Hello there!");
+        }
+    }
+}
diff --git a/TestAssets/TestProjects/TestLibraryWithAppDependency/project.json b/TestAssets/TestProjects/TestLibraryWithAppDependency/project.json
new file mode 100644
index 000000000..b63bfedad
--- /dev/null
+++ b/TestAssets/TestProjects/TestLibraryWithAppDependency/project.json
@@ -0,0 +1,12 @@
+{
+    "version": "1.0.0-*",
+    "dependencies": {
+        "TestApp":  { "target":"project", "version":"1.0.0-*" },
+
+        "NETStandard.Library": "1.0.0-rc2-23808",
+    },
+
+    "frameworks": {
+        "dnxcore50": { }
+    }
+}
diff --git a/src/dotnet/commands/dotnet-build/CompileContext.cs b/src/dotnet/commands/dotnet-build/CompileContext.cs
index 21fa11e06..0cae3a45b 100644
--- a/src/dotnet/commands/dotnet-build/CompileContext.cs
+++ b/src/dotnet/commands/dotnet-build/CompileContext.cs
@@ -91,7 +91,7 @@ namespace Microsoft.DotNet.Tools.Build
 
         private bool NeedsRebuilding(ProjectContext project, ProjectDependenciesFacade dependencies, string baseBuildPath)
         {
-            var compilerIO = GetCompileIO(project, _args.ConfigValue, baseBuildPath, _args.OutputValue, dependencies);
+            var compilerIO = GetCompileIO(project, _args.ConfigValue, baseBuildPath, _args.OutputValue, dependencies, project == _rootProject);
 
             // rebuild if empty inputs / outputs
             if (!(compilerIO.Outputs.Any() && compilerIO.Inputs.Any()))
@@ -437,12 +437,7 @@ namespace Microsoft.DotNet.Tools.Build
         // computes all the inputs and outputs that would be used in the compilation of a project
         // ensures that all paths are files
         // ensures no missing inputs
-        public static CompilerIO GetCompileIO(
-            ProjectContext project,
-            string buildConfiguration,
-            string buildBasePath,
-            string outputPath,
-            ProjectDependenciesFacade dependencies)
+        public static CompilerIO GetCompileIO(ProjectContext project, string buildConfiguration, string buildBasePath, string outputPath, ProjectDependenciesFacade dependencies, bool isRootProject)
         {
             var compilerIO = new CompilerIO(new List<string>(), new List<string>());
             var calculator = project.GetOutputPaths(buildConfiguration, buildBasePath, outputPath);
@@ -462,7 +457,7 @@ namespace Microsoft.DotNet.Tools.Build
             AddDependencies(dependencies, compilerIO);
 
             var allOutputPath = new List<string>(calculator.CompilationFiles.All());
-            if (project.ProjectFile.HasRuntimeOutput(buildConfiguration))
+            if (isRootProject && project.ProjectFile.HasRuntimeOutput(buildConfiguration))
             {
                 allOutputPath.AddRange(calculator.RuntimeFiles.All());
             }
diff --git a/test/dotnet-build.Tests/IncrementalTestBase.cs b/test/dotnet-build.Tests/IncrementalTestBase.cs
index e3450ad3f..0b5c3f72a 100644
--- a/test/dotnet-build.Tests/IncrementalTestBase.cs
+++ b/test/dotnet-build.Tests/IncrementalTestBase.cs
@@ -16,15 +16,16 @@ namespace Microsoft.DotNet.Tools.Builder.Tests
 
         protected readonly string MainProject;
         protected readonly string ExpectedOutput;
+        protected readonly TempDirectory Root;
 
         public IncrementalTestBase(string testProjectsRoot, string mainProject, string expectedOutput)
         {
             MainProject = mainProject;
             ExpectedOutput = expectedOutput;
 
-            var root = Temp.CreateDirectory();
+            Root = Temp.CreateDirectory();
 
-            TempProjectRoot = root.CopyDirectory(testProjectsRoot);
+            TempProjectRoot = Root.CopyDirectory(testProjectsRoot);
         }
 
         protected void TouchSourcesOfProject()
diff --git a/test/dotnet-build.Tests/IncrementalTestsTransitiveRuntime.cs b/test/dotnet-build.Tests/IncrementalTestsTransitiveRuntime.cs
new file mode 100644
index 000000000..fed114ca5
--- /dev/null
+++ b/test/dotnet-build.Tests/IncrementalTestsTransitiveRuntime.cs
@@ -0,0 +1,44 @@
+// Copyright (c) .NET Foundation and contributors. All rights reserved.
+// Licensed under the MIT license. See LICENSE file in the project root for full license information.
+
+using System;
+using System.IO;
+using Microsoft.DotNet.Tools.Test.Utilities;
+using Xunit;
+
+namespace Microsoft.DotNet.Tools.Builder.Tests
+{
+    public class IncrementalTestsTransitiveRuntime : IncrementalTestBase
+    {
+        private const string TestLibraryWithAppDependency = "TestLibraryWithAppDependency";
+        private const string LibraryProject = "TestLibrary";
+        private const string AppProject = "TestApp";
+
+        public IncrementalTestsTransitiveRuntime() : base(
+            Path.Combine(AppContext.BaseDirectory, "TestAssets", "TestProjects", "TestAppWithTransitiveAppDependency"),
+            "TestAppWithTransitiveAppDependency",
+            "This string came from the test library!" + Environment.NewLine)
+        {
+            Root.CopyDirectory(Path.Combine(AppContext.BaseDirectory, "TestAssets", "TestProjects", LibraryProject));
+            Root.CopyDirectory(Path.Combine(AppContext.BaseDirectory, "TestAssets", "TestProjects", AppProject));
+            Root.CopyDirectory(Path.Combine(AppContext.BaseDirectory, "TestAssets", "TestProjects", TestLibraryWithAppDependency));
+        }
+
+        [Fact]
+        public void TestSkipsRebuildWithTransitiveExeDependency()
+        {
+            var buildResult = BuildProject();
+            buildResult.Should().HaveCompiledProject(MainProject);
+            buildResult.Should().HaveCompiledProject(TestLibraryWithAppDependency);
+            buildResult.Should().HaveCompiledProject(AppProject);
+            buildResult.Should().HaveCompiledProject(LibraryProject);
+
+            buildResult = BuildProject();
+
+            buildResult.Should().HaveSkippedProjectCompilation(MainProject);
+            buildResult.Should().HaveSkippedProjectCompilation(TestLibraryWithAppDependency);
+            buildResult.Should().HaveSkippedProjectCompilation(AppProject);
+            buildResult.Should().HaveSkippedProjectCompilation(LibraryProject);
+        }
+    }
+}
\ No newline at end of file
diff --git a/test/dotnet-build.Tests/project.json b/test/dotnet-build.Tests/project.json
index 4c4a6f085..dfa6696dc 100644
--- a/test/dotnet-build.Tests/project.json
+++ b/test/dotnet-build.Tests/project.json
@@ -27,6 +27,8 @@
     "../../TestAssets/TestProjects/TestProjectToProjectDependencies/**/*",
     "../../TestAssets/TestProjects/TestProjectWithCultureSpecificResource/**/*",
     "../../TestAssets/TestProjects/TestProjectWithResource/**/*",
+    "../../TestAssets/TestProjects/TestLibraryWithAppDependency/**/*",
+    "../../TestAssets/TestProjects/TestAppWithTransitiveAppDependency/**/*",
     "../../TestAssets/TestProjects/global.json"
   ],