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Focus on Construction: News From the National Association of Home Builders 2017 Convention

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RubinBrown recently attended the National Association of Home Builders (NAHB) International Builder’s Show in Orlando, Florida. As in prior years, the show is combined with the Kitchen and Bath Industry, International Window Coverings and International Surface Event Shows bringing the overall attendance to approximately 80,000.
January 17, 2017

RubinBrown recently attended the National Association of Home Builders (NAHB) International Builder’s Show in Orlando, Florida. As in prior years, the show is combined with the Kitchen and Bath Industry, International Window Coverings and International Surface Event Shows bringing the overall attendance to approximately 80,000.

Here is what we learned:

Tax Reform

Clearly, the talk of the show was upcoming tax reform. Numerous presentations on the subject were held, including a special meeting of the Executive Board to discuss the topic in further detail. NAHB, through its lobbyists, have and continue to devote substantial resources to be part of the tax reform process. It appears they are as actively involved with those crafting new policies as any trade association in the country. NAHB was not involved in 1986 tax reform and as a result was “run over” with the changes that occurred – a lesson they don’t want to repeat.

Here is the latest:

  • The time frame of any changes may not be as fast as many expect. The House is expected to come out with its version of tax reform soon, but will be held up until the Senate addresses in the fall, or late summer at the earliest. The House version will be more radical, while the Senate more moderate. The Senate and Supreme Court confirmations and replacing Obamacare will likely further slowdown the process. A final bill, after reconciliation between House and Senate, may not even happen until 2018.
  • The proposed highest tax rate will certainly come down, for both individuals, corporations and pass-throughs. Top rates of 33%, 25% and everything in between are being discussed.
  • Cost recovery or 100% expensing is being proposed by several. This would allow homebuilders to expense all assets except land as incurred, but allow no deduction for business interest. The concern is that this could change current business practices and lead to overbuilding.
  • The biggest concern is the Mortgage Interest Deduction and its effect on the home building industry. All ideas proposed do not mention ending the deduction, but instead there are related consequences. If the standard deduction is doubled to $24,000 as proposed, NAHB estimates 90% of current taxpayers with a mortgage will not be able to claim the deduction, which is substantial. NAHB is studying the issue closely and some ideas have come forward including:

    • An above the line deduction for mortgage interest paid – similar to an IRA
    • A tax credit to incentivize home ownership
  • Several proposals have suggested the elimination of the property tax deductions and a cap on overall itemized deductions.

Stay tuned as RubinBrown will monitor and provide updates as available.

Housing Outlook

Home building starts are expected to increase 10% in 2017 from 2016, and another 9% in 2018.

The top 4 concerns for the industry according to a recent NAHB survey:

  1. Cost/availability of labor
  2. Cost/availability of lots
  3. Impact fees
  4. Surging building material prices

The housing market index hit 70 in December, the highest since 2005. The thought is home ownership has bottomed out at 62.9% and is on the way back up.

Other Items of Interest

  • NAHB endorsed candidates for the first time in the recent election, 131 of 139 endorsed won.
  • Any reference to rising interest rates is now being referred to as “historically favorable rates”.
  • Several builders across the country are complaining about new postal regulations that require mail boxes to be set in a cluster format.

     

    Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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