Builders Could Reap Up to 9% Tax Deduction in Years Ahead Home builders may now qualify for an additional 3% tax deduction under the Department of the Treasury’s recently published final regulations for the Section 199 domestic production activities tax deduction (part of the American Jobs Creation Act of 2004). The domestic production activities deduction is for businesses that manufacture goods or construct property in the United States. That includes the home building industry. Under the final regulations, the deduction for tax year 2006 is equal to 3% of a business’ qualified production activities income (QPAI). That percentage will rise from 3% to 6% for tax years 2007, 2008 and 2009. It will then increase to 9% for tax years 2010 and beyond. QPAI is equal to the excess of qualified domestic production gross receipts (DPGR) over the sum of business expenses associated with these receipts. Thus, the greater the receipts that are included in DPGR, the greater the tax benefit to the builder. DPGR is the taxpayer’s gross receipts derived from any lease, rental, license, sale, exchange or other disposition of qualifying property that was manufactured, produced, grown or extracted within the country. Of particular interest to builders, DPGR includes construction, engineering and architectural services performed for domestic construction projects. The deduction is limited to 50% of wages paid by the taxpayer for qualified Section 199 activities. Preliminary federal guidance for the Section 199 deduction (IRS Notice 2005-13 and draft regulations REG-105-847-05), published last year, had presented obstacles for builders. In response, NAHB and several coalitions of home builders submitted comments to the Treasury. This resulted in significant improvements to the final regulations. | 
