The 2009 Stimulus Package and Your Business: Tax Incentives

There’s a huge sale on new homes in your area, and it’s happening at your construction business. You can now offer dramatic incentives to lure buyers back into the market, and thanks to the federal government, it won’t cost you a thing.

As part of the stimulus plan, big tax breaks are available to prospective home buyers to nudge the housing market and the economy forward, and the credits can serve as a selling point for your business once you learn the details.

The biggest tax credit contained within the stimulus package (officially known as the American Recovery and Reinvestment Act of 2009) is the First-Time Home Buyer Tax Credit. It provides up to 10 percent off a home’s purchase price—up to $8,000—to qualified buyers.

Key points about the credit:

First, it’s a tax credit, not a tax deduction. That means that home buyers who qualify for the full credit can subtract $8,000 from their 2009 tax bill (or add it to their refund). In contrast, for example, the stimulus package offers a tax deduction for sales tax paid on new vehicles in 2009. In that case, car buyers can adjust their annual income down by the amount they spent on vehicle tax, but they don’t get repaid the full amount. In the case of the home-buyer credit, they do.

Second, despite the credit’s title, you don’t actually have to be a first-time home buyer to receive the credit. You just can’t have owned a principal residence in the last three years. So if a customer is a former homeowner who’s been renting recently, he may still qualify. Also, if a customer is building on land she already owns, that new home still qualifies.

Last, the credit is different from the one offered by the government in 2008. That one required that the money ultimately be repaid; this one does not.

Time will tell if the credit is enough to jump-start home sales. Some experts worry it’s not enough.

“Realistically, incentives that are smaller in nature—and this one is included in that group—will have a small impact and will borrow against future buyers, rather than adding buyers to the pool,” says Scott Mathie, vice president of government affairs for the Metropolitan Builders Association in Milwaukee, Wisconsin. He had hoped for a $10,000 to $15,000 credit that would apply to all buyers.

Still, if Uncle Sam is offering your customers $8,000, you should incorporate it into your sales pitch.

The stimulus plan also includes smaller tax credits, primarily related to energy efficiency. The stimulus plan provides for tax credits of 30 percent of cost, up to $1,500, for efficiency upgrades on products such as insulation, roofing and HVAC systems. (A similar, previous credit offered credits for 10 percent of cost.) And some big-ticket improvements such as geothermal heat pumps and solar panels aren’t subject to the maximum.

“The contractors and builders selling these products have to be savvy enough to explain them to consumers—not just the up-front costs but the long-term costs,” says Mathie. He suggests showing customers how investments in increased efficiency will lower energy bills. “People will be attracted by this [credit], but consumers expect value. It’s not just, ‘Because it’s green, I should do it.’ They expect a payback.”

Consumers looking for value in the housing market could find it before these credits were announced, because prices are low and inventories are high. But for new home buyers in 2009, these tax credits sweeten the deal. For astute builders and remodelers, they may even close some sales.

Check back next month for "The 2009 Stimulus Package and Your Business: Appropriations" to learn more about which appropriations enacted by the recent stimulus plan will affect your business.