President Barack Obama signed into law Friday legislation that extends and expands the Net Operating Loss (NOL) carryback tax provision and the homeowner tax credit. Both were part of H.R. 3548, the Worker, Homeownership, and Business Assistance Act of 2009, which the House passed earlier last week.
The NOL provision extends the ability of businesses to apply 2008 and 2009 losses to taxable income reported in the previous five years; the old limit had been the prior two years.
The tax provision could have profound impact on both building material dealers and builders. A Builder Onlinereport quoted a National Association of Home Builders (NAHB) estimate that the carryback provision, will keep thousands of home building and related companies in business, preventing the loss of at least 30,000 industry jobs. The impact on dealers isn't as certain, but it is certain that many of America's biggest dealers are bleeding red ink. ProBuild, the No. 1 dealer, has confirmed a Reuters report that its parent company has spent $345 million in the last six months to cover losses at the company. Meanwhile, Builders FirstSource has incurred net losses topping $68 million through the first three quarters, and Building Materials Holding Corp., now under Chapter 11 bankruptcy protection, has posted $40 million in losses just since mid-June.
The law treats businesses differently depending on whether they have gross receipts over or under $15 million (an increase from the old dividing line of $5 million). The over-$15 million business can take a credit of only 50% of income in year five. Businesses with gross receipts below $15 million are exempt from that limit. In addition, a business over $15 million can carry back losses from only one of the two years; smaller businesses are exempt and thus can carry back both years.
The legislation also extends the $8,000 First-Time Homebuyer Tax Credit through April 30, 2010, and provides a $6,500 credit through that same date for people who have owned their primary home for five years. In addition, the measure raises qualifying income limits for the program to $125,000 for a single person and $225,000 for a couple. (More.)
The National Lumber Lumber and Building Material Dealers Association (NLBMDA) had pushed both issues. "The enhanced and extended homebuyer tax credit will go a long way toward assisting the economic recovery of our industry by speeding up the disposition of foreclosures, stabilizing home prices and helping to bring equilibrium to housing inventories in many parts of the country," NLBMDA Chairman Dan Fesler, CEO of Lamperts in St. Paul, Minn., said in an NLBMDA statement. "Further, the expansion of the net operating loss carryback provision will free up capital and save jobs at a time we need it the most."
The Department of the Treasury Office of Tax Analysis has estimated that the five-year NOL carryback proposal would result in a revenue loss to the Treasury of $63.5 billion in fiscal years 2009 and 2010, Builder Online said. But it would also result in a $45 billion revenue gain for fiscal years 2011 through 2019 as businesses didn't take future deductions.