Tax Changes to Benefit Builders, New Buyers

The $787 billion stimulus package passed by Congress in February contains a pair of tax changes that could help the real estate market in Northwest Arkansas.

The most direct benefit will go to homebuilders, subcontractors or just about any business with $15 million or less in annual gross receipts. First-time homebuyers are also now eligible for an $8,000 tax credit if they purchase a home during 2009.

The “carryback” provision will allow businesses to apply losses incurred in 2007 and 2008 against taxes paid on profits earned in prior years, potentially resulting in refund checks.

Lance Johnson, owner of Lance Johnson Building Co. in Springdale and government liaison for the Northwest Arkansas Home Builders Association, said the law he personally helped lobby to Arkansas Sen. Blanche Lincoln will benefit nearly all of the more than 300 members.

Johnson was one of 80 members of a delegation sent to Washington D.C. on behalf of the National Home Builders Association to lobby for tax relief in the stimulus bill.

The original proposal would have captured all businesses, including mega-sized homebuilders, which produced sparks both within and without the organization.

Opponents called it a corporate giveaway, and within the NHBA there was a debate between the large and small builders. Small home builders worried that large companies could create “false” losses by selling property at a steep discount and perhaps even repurchasing it with the tax refund that “loss” would generate.

“That became a very contentious issue,” Johnson said. “What I know is that the large production companies within our association got crosswise with the rest of the industry.”

Johnson said around a dozen large companies build about half the homes in America, but the rest are built by the other 60,000 or so small- to mid-sized builders.

The $15 million cap was proposed by the NHBA as a compromise, Johnson said.

“If they didn’t put in the limit, we would have lost the carryback all together,” he said. “Our association started that so they wouldn’t lose the benefit for the smaller builders.”

Johnson, whose company is down to himself, his son and a bookkeeper after having as many as 14 employees during the boom years, said most builders and subcontractors are down to “fighting weight,” meaning they’ve cut all the fat they can.

Realtors report they’ve had more clients asking about the first-time home buyer credit, but confusion is still prevalent.

Kendall Riggins of Kendall Riggins & Associates, said the $8,000 credit won’t help someone who can’t afford a down payment because they can only receive the money after purchasing the house.

“It’s going to help the people who already could make a down payment,” he said.

That’s not necessarily a bad thing, said Nicky Dou of Century 21 Exclamation Realty.

“People who are relying on that to purchase a home shouldn’t be purchasing a home,” she said.

Dou said she mainly deals with clients who aren’t first-time buyers, but there is a lot of interest as part of what she’s seen as increasing optimism about the area market.

“What’s going on with the stimulus is going to help,” she said. “It’s getting people a little more excited about the economy.”

Riggins said he’s been swamped since the first of the year.

“We’ve seen a dramatic increase,” he said. “We’re writing contracts like crazy.”