House ignores Obama's homebuilder tax break

NEW YORK (Reuters) - Democrats in the U.S. House of Representatives did not include in their budget proposal a request by President Barack Obama to expand a key tax break sought by struggling homebuilders.

The provision under Obama's fiscal 2010 budget proposal would have expanded the "net operating loss carryback" window, which enables businesses to use recent losses to offset taxable profits from previous tax years.

Obama's budget did not offer specific details about how the break would apply or which businesses would qualify, but the revenue estimates suggest it would apply to all businesses and they could carry back losses from 2008 and 2009.

The builders almost succeeded in getting the expansion included in the $787 billion stimulus package approved last month, but Congress ultimately limited the break to small businesses with gross receipts of $15 million or less.

The National Association of Home Builders is actively lobbying for an expanded provision that would apply to businesses of any size, NAHB Chief Executive Jerry Howard told Reuters.

NOT DEAD YET

Builders had cherished high hopes for the stimulus bill, which in addition to the tax break measure had also originally included a $15,000 home buyer tax credit that was cut to $8,000 and restricted to first-time buyers.

At the height of the effort, Hovnanian Enterprises Inc Chief Executive Ara Hovnanian was spending 70 percent of his time focusing on it, Chief Financial Officer Larry Sorsby told a Credit Suisse analyst conference in January.

The U.S. homebuilding industry has been floundering amid a nationwide slump rooted in rampant risky mortgage practices, but exacerbated more recently by rising unemployment and a deepening recession.

But the House Democrats' decision to omit the measure is not a death sentence, said Clint Stretch, the managing principal of tax policy for consulting firm Deloitte.

The Senate might push for its inclusion in the final budget, he said. Moreover, the budget itself is nonbinding and the tax code's writers might not hew to it.

"Very often when tax committees actually write the budget they do something very different from what the budget committees intended," Stretch said.

Obama's support for expanding the opportunity to carry back net operating losses will work in the measure's favor, Stretch said, and the health of the economy will also shape its prospects.

"We could expect pressure for net operating loss relief to increase if the economy continues sluggish. If there's a miraculous recovery, the case politically is weakened."

(Reporting by Helen Chernikoff and Jeremy Pelofsky)