Congress has passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act) which provided relief to many real estate owners and developers. Here is a recap of some important CARES Act provisions:
Accelerated Depreciation on Qualified Improvement Property
The CARES Act provides for a correction to the treatment of Qualified Improvement Property (QIP), placed in service by a taxpayer after December 31, 2017. This is significant because it allows for the immediate expensing of qualifying property for federal income tax purposes. Generally, QIP is any improvement made by the taxpayer to an interior portion of a nonresidential building. Taxpayers may be able to take advantage by amending 2018 & 2019 tax returns or realizing the entire deduction in 2019 if not already filed.
Modification of Business Interest Limitations
The CARES Act also allows taxpayers to revisit their election to become a real property trade or business (RPTOB) if elected under the business interest limitation rules. Prior to the CARES Act, the amount of deductible interest an entity could claim was limited to 30% of its adjusted taxable income (ATI) unless elected to be treated as a RPTOB. Under the CARES Act, an entity is allowed to either revoke its election or to make an election to be classified as a RPTOB. The CARES Act also allows certain taxpayers to use a 50% limitation as opposed to the 30% limitation when computing allowable interest for the year.
Modification of Limits on Business Losses for Noncorporate Taxpayers
Prior to the CARES Act, there was a limitation on the deduction of certain business losses in excess of $250,000 ($500,000 for married taxpayers filing jointly) for taxable years beginning after December 31, 2017 and before January 1, 2026. The CARES Act pushes the beginning effective date of this change to taxable years beginning after December 31, 2020.
In order to implement these changes and maximize the impact timely, the IRS has provided taxpayers with some options. Watch for our on-demand Real Estate webinar series that will explore these and other topics further. We will post them soon on our Real Estate page.
If you have questions about these topics, please contact a member of your DGC client service team or Laura Gregoriadis, CPA at 781-937-5353 / lgregoriadis@dgccpa.com or Keith LeBlanc, CPA at 781-937-5149 / kleblanc@dgccpa.com. You can also visit our coronavirus web page at dgccpa.com/coronavirus which is frequently updated with resources to help you deal with the impact of the coronavirus on you and your business.
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