The House and Senate this week approved a tax compromise agreement negotiated by the White House and congressional Republicans that would extend all of the 2001 and 2003 Bush tax cuts for two years. Had no action been taken, all of the marginal tax rates would have risen in January, with the top rate jumping to 39.6%. 

The tax package, estimated to cost $858 billion over 10 years, includes several other positive provisions for NAHB members, as well as a couple of concerning aspects. Specifically, it will: 

Reinstate the expired estate tax for two years at a rate of 35%. Adjusted for inflation, the first $5 million of an individual’s estate (indexed for inflation) would be passed on to heirs tax-free and couples could exempt $10 million of their estate’s value. While NAHB would prefer to see the estate tax eliminated, this was the best proposal that was offered. Except for the temporary repeal of the estate tax this year, the rate has not been lower than 45% since 1931. Without congressional action, the tax was scheduled to return next year with a top rate of 55% for estates larger than $1 million for individuals and $2 million for couples.

Provide an estimated 21 million middle-class households and small businesses relief from the Alternative Minimum Tax through 2011.

Maintain the current long-term tax rate on dividends and capital gains through 2012. The highest capital gains rate of 15% was expected to rise to 20% next year. Had no action been taken, dividend payments could have been taxed at a rate of as much as 39.6% for top earners.

Renew the New Energy Efficient Home Tax Credit (45L) for 2010 and extend it through the end of 2011.

Allow businesses to write off the full cost of capital investments (excluding residential and commercial buildings) after Sept. 8, 2010 and through the end of 2011.

Provide a 50% bonus depreciation in 2012.

Extend the expensing of brownfields remediation costs through 2011.

Eliminate the Pease itemized deduction phase-out through 2012. The Pease rule reduces the value of itemized deductions such as the mortgage interest deduction and the real estate tax deduction for high-income taxpayers.

Extend tax deductions in the Gulf Opportunity Zone for an additional 2 years beyond the placed-in-service date.

Extend the deductibility of Private Mortgage Insurance through 2011; however, the existing adjusted gross income limitation of $110,000 remains.

In addition, the package will:

Extend unemployment benefits for an additional 13 months.

Provide a temporary, one-year payroll tax holiday of 2% for all workers by cutting Social Security taxes from 6.2% to 4.2% on the first $106,800 of wages. This tax cut applies only to employees, not employers.

Extend the college tuition and child care tax credits for two years.

Areas of Concern: LIHTC and Retrofit Tax Credits 

Unfortunately, and despite an intensive push by NAHB lobbyists, the tax cut package omits a key provision championed by NAHB. It does not include an “exchange” provision for the Low Income Housing Tax Credit (LIHTC) program that would allow state housing finance agencies to trade in a portion of their tax credit allocation for grant dollars to support local affordable housing.  NAHB had also called on lawmakers to reverse last-minute changes to the Existing Home Retrofit Tax Credit (25C) that will greatly diminish its value. Although the tax bill does include an extension of the 25C credit through 2011, modifications were made reducing the credit value to its 2006-2007 levels of 10% of the installed costs, with a maximum credit for all qualified retrofits of $500. The legislation also reinstates lifetime credit caps that disqualify any home owner who has claimed more than $500 in 25C tax credits since Jan. 1, 2005, from any further credits. As a result, the credit offers little practical incentive for home owners or remodelers.

In the waning days of the lame duck session, NAHB continues to meet with lawmakers and explore other options for extending the LIHTC exchange and restoring the 25C tax credit to its previous levels and rules under the American Recovery and Reinvestment Act. However, as Congress looks to wrap up its work, there are likely few, if any, opportunities available to move these housing priorities forward. If so, NAHB will continue its efforts to address these issues when the 112th Congress convenes in January. For more, contact: J.P. Delmore, 800-368-5242, x8412, or click here to visit NAHB's Eye on Housing blog.  

Builder confidence in the market for newly built, single-family homes held firm at a low level of 16 on the NAHB/Wells Fargo Housing Market Index (HMI) for December, released on Wednesday. According to NAHB Chief Economist David Crowe, the main reason was that "builders and consumers have yet to see consistent signs that the economy is improving." And while the HMI is a seasonally adjusted index, the typical cold-weather slowdown in home sales is being accentuated by ongoing weakness in the job market, the continuous flow of foreclosures and short sales, and very challenging credit conditions for both builders and buyers. Neither the HMI component gauging current sales conditions nor the component gauging sales expectations for the next six months budged in December, holding firm at 16 and 25, respectively. Meanwhile, the component gauging traffic of prospective buyers fell a single point, to 11. Three out of four regions posted declines in their HMI scores for December, including the Midwest and West (each down four points to 13 and 11, respectively) and the South (down one point to 17). The Northeast, which can display greater month-to-month volatility due to its smaller survey sample, posted a 12-point gain to 24 in December. Read our press release for more, or view the HMI tables online at www.nahb.org/hmi. Contact: Rose Quint, 800-368-5242, x8527. 

Figures released by the U.S. Commerce Department on Dec. 16 show that new-home production rose 3.9% in November from an upwardly revised number in the previous month, to a seasonally adjusted annual rate of 555,000 units. This marked the first upward movement in housing starts since August, and was entirely due to gains in the single-family sector. Single-family starts rose 6.9% in November to a rate of 465,000 units, while multifamily starts declined 9.1% to a 90,000-unit rate. At the same time, overall permit activity fell 4% to a rate of 530,000 units — though again, a decline in the multifamily sector dragged down the overall number. Single-family permits rose 3% to a rate of 416,000 units, their fastest pace since June of this year. On a regional basis, housing starts rose in all but the Northeast in November, and permit issuance rose in the South and West. In NAHB's analysis of the latest numbers, Chief Economist David Crowe noted that "The modest increase in single-family starts and permits in November is consistent with a very low inventory of unsold new homes and our member surveys that have shown a degree of optimism among builders with regard to sales expectations in the next six months. However, builders continue to find it extremely difficult to obtain credit for acquisition, development and construction activities, and this is weighing on their ability to initiate viable new projects that could generate much-needed job growth."  See our press release or the government's report for details. Contact: MondayMorningQuestions@nahb.org.

Are you registered and ready to attend the upcoming 2011 NAHB International Builders' Show (IBS) in Orlando on Jan. 12-15?  We hope so, because if you are, you can qualify for some fantastic deals that are being offered by IBS exhibitors in the time leading up to the show. IBS Power Deals are now being advertised on our Builders' Show website. Show registrants will receive an email notifying them of each offer, the expiration date and time, and how to sign up to take advantage of the offer online. Of course, anyone can opt-out of receiving the notification emails — but you might want to give these offers a second look. Each offer is good for 24 hours only, and only for those who are registered for the IBS. Once you've signed up to take advantage of a particular offer, you will need to visit the exhibitor's booth during the 2011 IBS to redeem it. Find out all you need to know at BuildersShow.com/Powerdeal. Questions about this great new program can be directed to Jennifer Sloane at 800-368-5242, x8487, or for IBS exhibitors who have questions, contact Ed Staley at x8116.

A special edition of Nation's Building News, published on Dec. 13, provides a great overview of what lies in store for you at the International Builders' Show this January. Check it out to find information on:

-Show homes to be built at the IBS;

-The Finance Pavilion and its mission to connect builders with lenders for their projects [fill out an application now at our online Finance Forum];

-The New American Home and tour times;

-Featured Exhibitors;

-The NAHB Production Group's Search at IBS for the next TV personality for a Home Improvement Show;

-Recommended Offerings; and more.

If you haven't seen this special edition and are planning to attend the 2011 NAHB International Builders' Show, you might want to check it out. It's a great resource for anyone who likes to be kept informed and ready for what comes next. If you have questions about the special edition, contact Tim Ahern at 800-368-5242, x8405.

NAHB offices will be closed for the federal holidays on Dec. 24 and 31, and the Monday Morning Briefing will not appear on the Mondays following these dates. Our next edition will be dated Jan. 10, just before the International Builders' Show, so keep an eye out. Thank you for your readership, and we wish everyone a safe and happy holiday season!