Home Builders Net More Than $2.6B From Tax Break in Stimulus Law

The home-building industry scored a big win last year when Congress voted to double the tax credit for new home buyers and extend the break until next month. But that’s not the only legislative move that’s leaving smiles on home builders’ faces.

sprawl.jpg(Photo: USDA)

A tax break included in the Obama administration’s stimulus law is helping pad their profit margins to the tune of at least $2.6 billion, the Wall Street Journal reports today:

Home builders, hit with big losses in the housing slump, are getting
the biggest lift from the law. Sixteen builders estimate they’re due
refunds totaling over $2.6 billion. The tax break propelled builders Lennar Corp., Hovnanian Enterprises Inc. and KB Home to profits in recent quarters. …

“We were able to dispose of lots, generate cash, take advantage of
[the tax break], improve our balance sheet,” KB Chief Executive Jeffrey Mezger said.
“It was a very nice move for us.” Booking the $192 million tax benefit
propelled KB Home to a $100 million profit in its fiscal fourth quarter
ended Nov. 30.

The tax benefit at issue is formally called the "net operating loss carry-back." In practice, it allows corporations to apply operating losses from the past five years to their current tax filings, putting many in line for significant refunds.

Some of the home builders reaping the benefits of the "carry-back" played a central role in the cheap mortgage-fueled housing boom that collapsed during last year’s financial crisis. KB Home was accused of defrauding home buyers alongside now-defunct Countrywide in a recent class action lawsuit.

In 2003, at the height of the boom, Lennar sought to build a new South Florida housing development within land slated for Everglades restoration. The project was killed years later after environmental groups rebelled.

One potential loser in the wake of the stimulus is smaller home-building firms, some of whom view the "carry-back" and other business tax breaks as a federal handout to their bigger counterparts. As one small builder told the AP last month:

"These public [builders] sold hundreds of millions of dollars worth of
land and took huge losses and wound up with hundreds of millions of
dollars of checks from the government sitting on their balance books,"
said Ken Endelson, CEO of Kenco Communities in Boca Raton, Fla. "It was a real bailout. No different than the banks."

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