On Friday March 27, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") became law as P.L. 116-136. The CARES Act and recently issued guidance contain the following tax provisions of particular interest to the real estate industry:
- NOL Carryback. Allow 2018, 2019, and 2020 net operating losses to be
used without being subject to the 80% income cap enacted as part of the
Tax Cuts and Jobs Act ("TCJA") and to be carried back five years.
- Section 461(l) Excess Business Losses. Effectively repeal the 2018
Section 461(l) excess business loss rules for 2018, 2019, and 2020 such
that real estate professionals can use excess real estate losses against
unrelated income (such as investment income).
- Section 163(j) Interest Expense Limitations. Increase the Section 163(j)
"interest stripping" limitation on business interest expense from 30% to
50% of adjusted taxable income (e.g., EBITDA) and allow taxpayers to
use 2019 ATI amounts in calculating the 2020 limitation.
- Qualified Improvement Property. Incorporate technical correction to
allow 15-year depreciation for qualified improvement property (primarily
tenant improvements) back to 2018, allowing for immediate expensing.
- Employer-Payroll Tax Delay. Delayed due date for employer-side payroll
taxes for wages paid from enactment until December 31, 2020. 50% of
these taxes will be due on December 31, 2021, and the other 50%, on
December 31, 2022.
- Forbearance of Residential Mortgage Loan Payments. Provide up to 90
days of forbearance for multifamily borrowers with a federally backed
multifamily mortgage loan who have experienced a financial hardship.
Borrowers receiving forbearance may not evict or charge late fees to
tenants for the duration of the forbearance period.
- Tax Filing and Payment Delay Until July 15, 2020. Taxpayers, such as
individuals, who were otherwise required to file tax returns or extensions
on April 15, 2020 now have until July 15, 2020 to file such returns and
make corresponding payments (no extension is required to be filed on
April 15, 2020).
- Other Non-Tax Benefits. For a discussion of small business loans1,
employee retention credits, and the new USD 500 billion government
"bailout" fund, see Baker & McKenzie Client Alert, Senate PassesCoronavirus Bill Containing Tax Provisions, House of Representatives to Vote Soon.