Builders Could Reap Up to 9% Tax Deduction in Years Ahead
Home builders may now qualify for an additional 3% tax deduction under the Department of the Treasury’s recently published final regulations for the Section 199 domestic production activities tax deduction (part of the American Jobs Creation Act of 2004).
The domestic production activities deduction is for businesses that manufacture goods or construct property in the United States. That includes the home building industry.
Under the final regulations, the deduction for tax year 2006 is equal to 3% of a business’ qualified production activities income (QPAI). That percentage will rise from 3% to 6% for tax years 2007, 2008 and 2009. It will then increase to 9% for tax years 2010 and beyond.
QPAI is equal to the excess of qualified domestic production gross receipts (DPGR) over the sum of business expenses associated with these receipts. Thus, the greater the receipts that are included in DPGR, the greater the tax benefit to the builder.
DPGR is the taxpayer’s gross receipts derived from any lease, rental, license, sale, exchange or other disposition of qualifying property that was manufactured, produced, grown or extracted within the country.
Of particular interest to builders, DPGR includes construction, engineering and architectural services performed for domestic construction projects. The deduction is limited to 50% of wages paid by the taxpayer for qualified Section 199 activities.
Preliminary federal guidance for the Section 199 deduction (IRS Notice 2005-13 and draft regulations REG-105-847-05), published last year, had presented obstacles for builders. In response, NAHB and several coalitions of home builders submitted comments to the Treasury. This resulted in significant improvements to the final regulations.
For more information about running your home building or related business, visit www.nahb.org/biztools on the NAHB Web site (available to NAHB members only) and subscribe to NAHB’s Business of Building e/Source.
NAHB Has More Than 250 Resources to Help You Run Your Business More Profitably
Go to NAHB's Business Management Tools Web pages (available to members only) for instant access to more than 250 timesaving, moneymaking and cost-cutting business resources to help you run your business more profitably. Get guidance on accounting and financial management, business strategy, computers and information technology, customer service, human resources and more.
Resources are added weekly, so bookmark www.nahb.org/biztools to go directly to these vital business management resources.
Local and state home builders associations can link directly to www.nahb.org/biztools from their Web site and give their members instant access to these resources. It will make your HBA's Web site the place to go for the information and guidance that members need to succeed.
NAHB Technology Solutions Directory Now Online
NAHB’s Technology Solutions Directory — an easy-to-use directory that enables builders, remodelers, contractors and other industry professionals to find information on software and IT solutions and services for their businesses — is now online. The directory is sponsored by the Business Management & Information Technology Committee.
Software and technology solutions providers interested in being listed can sign up for:
- Enhanced Listing — Listing includes company name, URL, e-mail address, mailing address, phone number, company/product description, company logo. Click here for more information.
- Standard Listing — Listing includes company name and phone number. Click here for more information.
For more information, e-mail Wil Heslop at NAHB.
The Technology Solutions Directory is solely for educational and informational purposes. Nothing in the directory should be construed as policy, an endorsement, warranty or guaranty by the National Association of Home Builders of the listed software, IT service or the software/IT vendor. The National Association of Home Builders expressly disclaims any responsibility for any damages arising from the use, application or reliance on any information contained in this directory.