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| Tax refunds, relief for builders |
By Dawn Wotapka
The new tax break for businesses signed into law recently will result in a windfall valued at hundreds of millions of dollars for the biggest home builders, boosting the cash hoard the companies are tapping as they limp toward recovery.
The tax break would give companies big refunds to help make up for recent losses. Specifically, it would let large firms claim cash refunds on taxes they paid going back five years, to offset current losses. Previously, the carry-back period for large firms was two years.
Although the new tax break would apply to a variety of companies, it will be of particular benefit to home builders, whose earnings have gyrated more widely than companies in some other industries.
The big public builders began lobbying hard for the tax break after the housing market crashed and companies were struggling to survive on dwindling cash reserves. But these days, many builders are sitting on lots of cash after years of selling assets and hoarding money.
J.P. Morgan reports that 10 of the top builders currently have an average of $1.2 billion in cash, compared with $616 million as the market soured in late 2007.
In the past few years, builders were so desperate for cash that they were "moving everything out the door, regardless of price just to bring money in," said Rob Stevenson, a real-estate analyst with Fox-Pitt Kelton, an investment bank. Giving them a tax break now is essentially "giving them free money."
Pulte Homes Inc., in Bloomfield Hills, Mich., estimates that it could receive a tax refund in excess of $450 million. Credit Suisse, which upgraded two home builders on Friday, predicts Miami-based Lennar Corp. could see between $200 million and $300 million. Meritage Homes Corp., based in Scottsdale, Ariz., expects about $60 million.
The upgrade, tax news and other developments lifted shares for several builders. Lennar ended up 63 cents, or 4.7%, at $14.14. Meritage rose $1.11, or 5.9%, to $19.90.
Smaller private builders, which have been hit harder than big builders, would receive smaller refunds, but the cash will have a bigger impact.
"They can take a breath," said Bill Killmer, vice president of advocacy at the National Association of Home Builders. "Many of these guys would have to shutter and close their doors. They'll be able to survive."
The tax break isn't without controversy. Although the NAHB fought hard for the tax break, some members also fretted that large builders might use the break to unload land at a discount to generate a tax loss and then buy the land back when the market recovers, potentially putting smaller players at a disadvantage. But that is no longer a big concern since builders already sold off large swaths of land.
The tax break is part of a package that would also extend the first-time home-buyer tax credit. (wsj.com) |
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| How to rent your home from Fannie Mae |
By Nick Timiraos
Fannie Mae recently announced that it will let troubled homeowners rent their homes instead of losing them through foreclosure and eviction. The new program is aimed at providing greater home security to distressed borrowers who can’t afford their mortgage payments and can’t get a loan modification, but would be able to afford the rent.
The program is structured so that borrowers transfer their property deed to Fannie, a process known as a deed-in-lieu of foreclosure. A deed-in-lieu will ding a borrower’s credit score, but it isn’t as damaging as a straight-up foreclosure, even though the end result is the same: Fannie gets back the property. Fannie completed around 1,200 deed-in-lieu transactions during the first half of the year.
In the new “Deed for Lease” program, borrowers must qualify for a deed-in-lieu under Fannie’s current guidelines, and if they can demonstrate that they have enough income to pay a market rent, they’ll be able to sign a lease for up to 12 months. Here’s a few question and answers about the program:
How do I know if Fannie owns or guarantees my loan?
Fannie Mae has a loan look-up Web site that lets borrowers see whether their loan is held or backed by Fannie, and therefore eligible for the program. Mortgages backed by the FHA and other government agencies don’t qualify.
Can homeowners qualify for the program if they’re current on the mortgage?
No. The program is open only to borrowers who have missed a payment and who therefore can show that they can’t afford their current mortgage payments. A borrower’s mortgage servicer must also show that the borrower isn’t eligible for a loan modification. Potential tenants have to demonstrate that market rent wouldn’t exceed 31% of their monthly gross income, and borrowers who are 12 or more payments past due on their mortgage aren’t eligible.
Could borrowers-turned-tenants buy their home back when the lease expires?
Unlikely. Fannie said that at the end of the initial lease term, they may choose to extend the lease or “offer for sale to any qualified home buyer.” Most borrowers who have recently missed mortgage payments and executed a deed-in-lieu probably won’t have strong enough credit or enough cash to be able to buy a home.
Can borrowers intentionally default in order to be eligible for the lease program?
Again, it’s unlikely. Fannie said that “borrowers would not qualify for a deed-in-lieu, and therefore not qualify for a deed for lease, if it is determined that they can afford their current mortgage payments.”
Are there any other restrictions?
Second lien mortgages aren’t eligible, and any subordinate liens secured against the borrower must be released. Borrowers can’t be involved in an active bankruptcy proceeding and aren’t parties to any litigation on the property or the loan. Properties also couldn’t be rented if rented homes would violate zoning or homeowners’ association rules.
Who will manage the properties?
Fannie Mae has contracted with a national property management company to handle maintenance and property management. Here’s a full list of rules and regulations, Fannie’s FAQ, and a page that includes borrower instructions for the program. (wsj.com) |
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| Don't leave valuable tax breaks on the table |
By Jason Alderman
In the midst of the holiday hustle and bustle, try to carve out a few moments for some year-end financial housekeeping. You may be able to save enough money using available tax breaks to pay for all your holiday needs – and more.
Here are a few suggestions:
Boost 401(k) savings. You can contribute up to $16,500 to your 401(k) plan in 2009, plus an additional $5,500 if you're over age 50. Making pretax contributions reduces your taxable income, which in turn lowers your taxes – not to mention the boost employer-matching contributions, when offered, can give to your account balance.
Online calculators (like the one at www.kiplinger.com/tools/401kadd.html) can help you estimate the impact additional contributions will have on your taxes. If you're not already maxing out, ask your benefits department if you can make additional contributions before December 31.
Use up flexible spending account (FSA) balances. If you participate in employer-sponsored health care or dependent care FSAs, which let you use pretax dollars to pay for eligible expenses, make sure you spend the full balance before the plan-year deadline (sometimes up to 75 days into the following year); otherwise, you'll forfeit what's left over.
You can use your surplus health care FSA balance for things like over-the-counter medications, glasses or contact lenses. Conversely, if your account is empty, consider postponing non-critical medical expenses until early next year so they can count toward your 2010 FSA. See IRS Publication 502 for a complete list of allowable and non-allowable expenses (www.irs.gov).
To learn more about 401(k) plans and FSAs, visit Practical Money Skills for Life, Visa's free personal financial management site (www.practicalmoneyskills.com/benefits).
Charitable contributions. If you itemize deductions on your taxes, charitable contributions made to IRS-approved organizations by December 31 are generally tax-deductible. (See Publication 78 at www.irs.gov for a complete list of organizations.) By accelerating donations you planned to make in 2010, you can beef up your 2009 deduction, thereby lowering your tax bill.
Tax credits for energy-efficient home improvements. You can claim a tax credit for up to 30 percent of the purchase price of certain home improvements to existing homes (including central air conditioning, furnaces, windows and water heaters), up to a maximum of $1,500 over 2009 and 2010. Check out the government's Energy Star website for details (www.energystar.gov/taxcredits).
Sales tax deduction for new cars. If you're already planning to buy a new vehicle in the coming months, doing so before December 31, 2009, may allow you to deduct state and local sales and excise taxes on up to the first $49,500 of the cost, even if you don't itemize deductions. The deduction gradually phases out for those whose adjusted gross income is over $125,000 ($250,000 for married couples filing jointly).
Other strategies that help some taxpayers include:
* Prepaying 2010 property taxes by December 31, 2009
* Prepaying January 2010 mortgage payment by December 31, 2009
* Making annual gifts of up to $13,000 ($26,000 for married couples) per recipient without triggering estate taxes
* Check with your financial advisor or a tax specialist before taking these actions to ensure they will work for you. |
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By Marlene Hanson
SAN DIEGO, Calif. – Pardee Homes prides itself on building homes for the way people want to live, so when prospective homeowners indicated that a fourth bedroom would make one of their floor plans more appealing, they listened. At the company’s popular Carriage Run neighborhood in coastal-close Carmel Country Highlands, the Plan 1 home had sold well enough with three bedrooms, according to Rachel Collins, director of sales for Pardee Homes, but a fourth bedroom upstairs, in addition to the existing bedroom downstairs, was added in response to input from home shoppers.
“The addition of a fourth bedroom upstairs, and having a guest bedroom and full bathroom downstairs, was just what the Plan 1 at Carriage Run needed to make it more versatile,” said Collins. “It’s a really livable floor plan with its great room, dining room and open, airy kitchen, all in an easy to love size, with approximately 2,151 square feet. Adding an extra bedroom upstairs means growing families will have enough bedrooms and the option of a home office, guest room or even room for a Nanny.”
Priced from the mid $700,000s, Carriage Run features a total of three floor plans, with four bedrooms, two and three baths and square footage ranging from approximately 2,151 to 2,402 square feet. Customizing choices such as optional bedrooms and master bedroom decks are available and standard features in all three floor plans include dramatic nine-foot ceilings throughout, gourmet kitchens with a General Electric® appliance package and granite tile kitchen countertops.
Plan 2 has a formal living room and spacious gourmet kitchen with a morning room. This four-bedroom home has the option of a cozy loft in place of a bedroom. The traditional styling of Plan 3, with four bedrooms, makes this versatile home ideal for growing families and includes a formal living room, family room with eating nook and a second floor teen room.
The homes at Carriage Run live big and bright with lots of windows and, like all new homes by Pardee, include the company’s exclusive LivingSmart® program of standard and optional measures that boost energy efficiency, save water, improve indoor air quality and encourage material conservation. In addition, Carriage Run is a certified California Green Builder neighborhood, offering significant improvements in energy efficiency, indoor air quality and comfort, on-site water recycling, and water and wood conservation. California Green Builder homes are designed and built to exceed Title 24 standards by at least 15 percent and these homes use at least 20,000 gallons less water than similar, newly constructed non-green homes.
New homes at Carriage Run include front yard landscaping and a Carmel Valley location that boasts easy coastal access, convenient shopping, open space, parks, hiking trails and the benefits of some of the highest achieving schools in San Diego.
For more information go to www.pardeehomes.com or call (858) 259-0876. |
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