Surge of work on homes for tax credit expected

By Sean Hao
Advertiser Staff Writer

Among the work covered by the state tax credit for home building and renovation is floor replacement. Advertiser library photo Home-repair tax credit Costs that qualify for the credit: Replacing or recovering a floor Reconditioning elevators Replacing or recovering a roof Installing a central air conditioner unit. Costs that do not qualify for the credit: Patching and repairing floors Reinforcing sagging floors Piecemeal repair to floors Replacement of small parts. More details can be found online.

Legislators decided last week not to advance a bill that would have extended the tax credit for home building and renovation. The 4 percent tax credit was enacted shortly after the Sept. 11 attacks to energize Hawai'i's home-construction and remodeling industry. However, record low interest rates rather than tax credits are considered a prime reason why new home sales last year were the highest since 1997.

Still, homebuilders said the tax credits are widely used, allowing consumers to leverage their buying power. Home construction and remodeling work will likely accelerate before they expire, said Danny Graham, president of Graham Builders in Makiki.

"I would expect this will light a fire under some people," he said.

The nonrefundable tax credit equates to a $10,000 credit for a $250,000 home or a $5,200 credit on a $130,000 home renovation. An individual or developer's state income tax bill can be reduced by the credits.

Eligible expenses include planning, design, construction and equipment costs, but exclude items such as appliances. The maximum allowable credit is $10,000.

Renewing the tax credit did not have enough legislative support, given the state's tight budget and current strength of the housing market, said Sen. Gary Hooser, D-7th (Kaua'i, Ni'ihau).

"I think there was some feeling that all of that (construction) activity would happen without the tax credit," he said.

How much homeowners and developers have saved under the home building and remodeling tax credit has not yet been compiled by the state Department of Taxation.

Mike Jones, Hawai'i division president for homebuilder Schuler Homes Hawaii Inc., agreed that business likely will pick up as the tax credit deadline looms.

"Obviously the more construction we can get completed before that deadline to try and take advantage of that tax credit — that's going to happen," he said.

Whether the end of the tax credit program would cool Hawai'i's hot housing market was difficult to predict, he said.

"I think interest rates right now are the big driver," he said. "If interest rates were higher, I think it would have a bigger impact."

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.