Fall 2007 issue of Horizons

INDUSTRy u

HOME BUILDERS

TAX ADVANTAGES OF HOME OWNERSHIP

Advantages Of Home Ownership

Given the slowdown in the market, it is important to remind buyers – especially those buying for the first time – that home ownership continues to be one of the best tax-favored advantages available to individuals. As a reminder, the following items should be considered and “promoted” when selling a home: Purchasing Your Home Individuals may deduct the interest on up to $1 million of acquisition debt incurred to acquire either their primary or secondary residence. Mortgage interest and real estate taxes on both your primary home and on a secondary or vacation home are deductible. Real estate tax payments are deductible, while condominium association fees and subdivision assessments are not. Residing in Your Home Taking out a home equity loan can provide you with additional tax deductions. Interest on $100,000 of home equity debt is deductible, regardless of how the funds are use the funds, as long as the fair market value of the home is at least $100,000 greater than the acquisition indebtedness with respect to that residence. As personal interest (car loans, credit card debt, etc.) is not deductible, consider using a home equity loan to convert your personal debt to qualified residence debt. Selling Your Home Most homeowners now escape taxation on the sale of their homes, as up to $250,000 ($500,000 if married, filing jointly) of gain on the sale of a principal residence is now excluded from income provided certain tests are met. To qualify, the home must have been your principal residence for at least two of the last five years. For individuals who do not meet the two-year requirement due to job relocation or health reasons, a prorated amount is excludable.

THE MARKET

Closings for 2006 will be down as much as 40 percent from a record-breaking year in 2005. It is important to keep in perspective that last year ended what had been quadruple back-to-back-to-back-to-back record- breaking years. 2006 will put up closing numbers close to 2002 activity, which is NOT BAD, but certainly not what was expected going into the year. A good thing – it appears inventory levels were reduced in the last few months of 2006. Spec activity as a percentage of the total market has been very high for the entire year. Creative marketing, incentives and discounting have become the norms that are fueling the sale of spec housing. What to expect for 2007? NAHB is now cautiously predicting there will be some upturn beginning mid- year. Given a current strong economy, high employment, continued job growth and household formation, and steady if not potentially falling interest rates, it seems reasonable to think their prediction will be on target. In St. Louis and the Midwest, it is hopeful that sales will be better during the upcoming spring selling season. Traffic during January was particularly encouraging. However, given the very low amount of backlog at the end of 2006, spec sales will need to remain high for 2007 to be a successful year. It is likely to be a market loaded with much activity in the last half of the year. Stay tuned!

31 u winter 2007 issue