CONSTRUCTION Accounting ARTICLE -Extended NOL carryback period offers contractors tax relief

Target Audience: Construction Industry Professionals, Business Owners, Project Managers, Contractors, Construction Accountants

This tax season, some construction companies may find welcome relief from an uncertain economy and challenging marketplace because of the recently extended net operating loss (NOL) carryback period. This provision is part of the Worker, Homeownership and Business Assistance Act of 2009, a bill passed last November that aims to create jobs and offer respite to struggling businesses and the unemployed.

NOL Extension background

For many contractors, this tax law change is a long time coming. As the housing bubble grew during the early 2000s, construction companies cashed in, paying substantially higher taxes as a result. When the bubble burst, however, many of the same businesses that had been experiencing unprecedented growth found themselves in dire straits.

The National Association of Home Builders (NAHB) has since been lobbying to help homebuilders recoup some of their losses through favorable tax legislation. The NOL extension will save 30,000 jobs at homebuilding businesses nationwide, according to NAHB CEO Jerry Howard.

NOL Technical details

The newly renewed NOL rules allow most businesses to carry back their NOLs for up to five years, instead of the previously sanctioned two.

Companies must make carryback elections by the deadline for filing a return (including extensions) for their last taxable year beginning in 2009, and may claim operating losses that occurred in tax years ending after Dec. 31, 2007, and beginning before Jan. 1, 2010. For the fifth year, carrybacks are limited to 50% of that year’s taxable income.

Eligible small businesses (those with gross receipts not exceeding $15 million) may apply the five-year carryback to both the 2008 and 2009 tax years. Those that don’t qualify as a small business must choose between either 2008 or 2009 — they can’t claim both. Some companies, namely large financial institutions that received bailouts from the Troubled Asset Relief Program (TARP), aren’t eligible for the carryback extension at all.

Before the NOL extension, losses claimed for alternative minimum tax (AMT) purposes were limited to 90% of the AMT NOL. Now taxpayers are allowed to carry back 100% of their AMT NOL as well. This can result in additional savings for construction companies that typically end up paying some AMT tax.

A valuable opportunity to manage your tax liability

If your construction business suffered an NOL during the 2009 tax year, the time is now to put it to use in better managing your tax liability. You’ll need to look at, among other things, your 2008 and 2009 revenues, NOLs and the taxes you’ve paid over the last five years. Talk to your construction accountant about whether you qualify and what your next move should be.

Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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