Builders Cash in on Tax Refunds

Extension of net operating loss carry-back provision to five years are returning millions of dollars to public builders, some of which are using the money to buy land at bargain prices.


Christmas came a little late, but with a huge satchel of gifts for many of America’s largest home builders: Nearly $2 billion in total tax refunds for the last three months of 2009.

On Tuesday, Pulte, the housing industry’s largest builder, reported that its earnings loss for the three months ended Dec. 31, 2009 had narrowed to $116.9 million. That improvement in no small measure resulted from a whopping $800 million tax refund that Pulte gained from a law change that now allows companies carry back net operating losses up to five years.

The net operating loss (NOL) carryback provision was one of the key lobbying points—the other being the extension of the federal tax credit for home buyers—that NAHB and its largest members pushed Congress hardest for to resuscitate the housing sector. Pulte’s tax benefit, which helped offset $925 million in quarterly land impairments and other writedowns, is the largest among the almost $2 billion in total NOL refunds that 10 of the industry’s publicly traded builders reaped in their latest quarters. (See chart below.)

Two other public companies, Hovnanian Enterprises and Toll Brothers, ended their latest fiscal years before the law went into effect, and therefore reported losses for of $250.8 million and $78.8 million, respectively, in their fourth quarters. Both builders, however, intend to take full advantage of the law change. Larry Sorsby, Hovnanian’s CFO, told investors that his company is “now expecting a $275 million to $295 million tax refund in our second quarter of 2010.” Toll believes it will recover $161.8 million in 2010 from filing its 2009 tax return.

Indeed, the tax refunds that large public builders have received so far could be just the tip of the iceberg. D.R. Horton, for one, has submitted a claim for a $352 million refund for the current quarter.

During their first quarters of 2010, Ryland Group is counting on refunds of $99.4 million, Meritage Homes $93 million, KB Home $190.7 million, and Standard Pacific $103 million.

Lennar is also banking on a $320 million tax refund in early 2010. “Our improved balance sheet enables us to continue to capitalize on distressed land-buying opportunities, which will improve our operating results in 2010 and beyond,” said its CEO Stuart Miller.

M.D.C. Holdings expects to do the same. As it was closing the books on 2009, the Denver-based builder raised new capital by issuing $250 million in new debt. M.D.C. also expects to receive a $143 million tax refund during the first quarter of 2010. “Given these enhancements to our liquidity, we are well-positioned to continue making investments in 2010 as we build our land pipeline to support future home closings,” wrote M.D.C.’s chairman and CEO Larry Mizel.

John Caulfield is senior editor for BUILDER magazine.

Company Quarterly net income for three months ending 12/30/09 Tax refund

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Pulte $(116.9) million $800 million

Lennar $35.6 million $251.1 million

KB Home $100.7 million $191.7 million

M.D.C. Holdings $127.2 million $142.6 million

D.R. Horton $192 million $113 million

Beazer $50 million $101 million

Ryland Group $39 million $97.6 million

Standard Pacific $82.7 million $94.1 million

Meritage Homes $43 million $90 million

M/I Homes $7 million $31 million

TOTAL $560.3 million $1.9 billion