Home Builders Poised for Windfall Thanks to Change in Tax Rule

Posted by: Brian Burnsed on November 03

Yesterday, we posted a story on potential changes in the net-operating loss carryback rules that would allow firms of any size to get a significant tax break to offset losses they experienced since the onset of the financial crisis. The rule change comes as part of a bill that would extend unemployment compensation and is likely to pass the Senate and House by week’s end.

A study by the National Bureau of Economic Research claims that extending the carryback period from two years to five years as proposed in the legislation would prove to be a $34 billion financial windfall for corporate America (most major banks are excluded from receiving the tax benefits because firms that received TARP money do not qualify).

Today, Chris Senyek, an accounting and tax policy analyst at research firm ISI Group, released a report estimating how individual firms will be affected by the carryback extension. ISI sought to find the biggest winners and, as expected, major housing firms stand to reap some of the most robust rewards from the tax break. Using the income taxes they paid on their massive gains earlier this decade to offset the sharp decline in revenue they’ve seen over the past two years will help these firms save tens of thousands of jobs. In the study, ISI calculated the amount of cash taxes paid since 2003 (firms can opt to apply the carryback to losses from 2008 or 2009, so 2003 is the first applicable year) and compared that figure to the firm’s market capitalization to determine which firms stood to benefit the most.

Among the top ten firms, six were home builders, including Beazer Homes, Standard Pacific and Hovnanian Enterprises. Many of the rest on the list were lesser-known financial services and analysis firms that didn’t receive TARP money, such as PMI Group and Ambac Financial, which topped this list as the $939 million in taxes they’ve paid since 2003 amount to 279% of their current market cap.

Largest Potential Beneficiaries of Extended Carryback Period ($ millions)*

*Homebuilders Pulte Homes and Centex were excluded due to a merger that complicated data analysis, but are estimated to among the top-10 beneficiaries of the extension.

Estimates: ISI Group