Fixing the Housing Crisis: Small Businesses Should Take Note

The current housing crisis has sent a shockwave to the economy that has reverberated across several sectors and industries. Though homebuilders and mortgage lenders have been singled out as the sole bearers of this economic burden, the truth is that numerous businesses and service providers are feeling the strain. Think carpenters, landscapers, and house painters as well as the retail outlets for home repair and supplies, such as Home Depot.

A large number of these goods and services are provided by local small businesses who have limited resources to weather the economic storm. So any action taken (or lack thereof) to fix the housing situation will impact the nation’s economy on both a macro and micro level. Since most small businesses are in some way effected by how the housing crisis is handled, they would do well to keep an eye on the issue.

If you are a little clueless about the details of recent housing legislation, CNN has a general primer on some of the different housing proposals to grace the Capitol. Small business owners should also follow the (sometimes evolving) proposals of McCain and Obama.

Being successful in today’s economy means staying informed.

The Housing Stimulus Bill: Good for the Housing Industry; May Leave Homeowners in the Cold

Last month, the US House of Representatives passed a Housing Stimulus Bill addressing the foreclosure crisis that is currently gripping the nation. While the bill includes several items aimed at helping the housing industry, some are quick to point out there is little direct help for families facing a foreclosure.The bill, which is awaiting Congressional approval, has three major provisions that could provide a significant boost to homebuilders and other businesses involved with the housing industry:

Tax Exempt Mortgage Revenue Bonds

The housing bill includes a $10 billion increase in state revenue bonds to help refinance existing mortgages and prevent foreclosures. The money will also be used to provide mortgages for first-time home buyers. The housing bill will further provide another $4 billion in grants to states and local governments in order to buy and renovate abandoned and foreclosed homes.

 

Net Operating Loss Carry Back Expansion

This provision allows any housing-related business that loses money in 2008 and 2009 to use those losses to offset the taxes they paid in the previous four years, as opposed to the two years currently allowed by law. By allowing operating losses to be claimed now, homebuilders and other businesses that are suffering will be given instant financial resources to help them get through the economic downturn.

 

Tax Credit for Purchase of Homes

To encourage the purchase of foreclosed or newly built homes, a tax credit of $7,000 would be available to new home buyers which could be claimed over two years.

While the powers-that-be debate the provisions of the housing bill and the extent to which it will actually help families facing foreclosure versus the housing industry itself, one thing is for certain: any intervention on the part of the government will bring some measure of welcomed relief to an ailing industry.

Construction in a Slowing Economy: A Rough Road Ahead

Analysts and academics may disagree about whether or not the economy is in recession, but for the construction industry such discourse may fall on deaf ears. Across the country new home sales plummeted 26% in 2007, and 2008 has already seen the beginnings of a slump in nonresidential construction that is only expected to worsen as the year progresses.

The fate of many small home builders and construction companies may depend not only on how they weather the recession (that is, if we even decide that we are in one), but also in their ability to adapt to the current economic climate. Some home builders, for example, are looking for creative ways to sell their homes.

One notable trend is the recent rise in existing home sales driven by bargain hunters and first-time home owners. This could mean an increase in the demand for remodeling and extensions.

Whatever strategy they use, small home builders and construction companies still have a rough road ahead.

How Does the Economic Stimulus Act of 2008 Effect Your Equipment Purchases?

In an attempt to revitalize a slowing economy, President Bush signed into law on Feb 20th the Economic Stimulus Act of 2008. Thanks to this new set of policies, lower and middle income taxpayers stand to benefit from additional rebate checks and an easier time refinancing their mortgages.But taxpayers are not the only ones benefiting. The ESA temporarily reinstates a first-year depreciation deduction equal to 50 percent of the cost of the equipment. Qualifying equipment and other fixed assets must be purchased after Jan 1 2008, and put into use by Dec. 31, 2008. During this period, a business may claim an additional first-year 50% depreciation deduction on purchased assets plus the normal first year depreciation deduction (which is 20% for 5-year assets) on the remaining net cost.

Another noteworthy change to the tax code involves a significant increase to the Section 179 expensing limits. Previously, the limit on equipment purchase deductions was $128,000, and the total cost of equipment purchased could not exceed $510,000. The Economic Stimulus Act of 2008 has almost doubled the deduction cap, to $250,000, and raised the total allowable cost of new equipment purchases to $800,000.

Though experts disagree regarding the effect the Economic Stimulus Act of 2008 will actually have on the economy, one thing is clear: if you own a small business and are need of new or additional equipment, now is the time get it.