Coronavirus Aid, Relief and Economic Security Act (CARES Act) Guideline

Corporate Finance & Restructuring | Real Estate

April 6, 2020

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On March 27, the President signed into law the CARES Act, designed to provide financial relief to those impacted by the COVID-19 pandemic. The Act contains both tax and financial relief provisions intended to address the strains placed on individuals and businesses, both large and small, from the coronavirus impact.

Real Estate – Executive Summary

The most prominent tax aspects of the CARES Act as it relates to real estate owners and operators are as follows:

  • Qualified Improvement Property life fixed to reflect 15 years and now eligible for bonus depreciation.
    • Most REITs do not take bonus as it doesn’t apply for earnings & profits.
    • Absent further guidance, entities that elected out of section 163(j) will not be eligible for bonus on QIP.
  • NOLs from 2018, 2019 and 2020 can be carried back 5 years for corporations (e.g. Taxable REIT Subsidiaries).
    • This provision will allow corporations to obtain a refund of taxes paid at the 35% tax rate for years prior to 2018.
    • In addition, the NOL carryforward limitation of 80% is removed for 2019 and 2020. This would apply to 2018 NOLs carried forward.
  • Forgivable small business loans available for those financially impacted by COVID-19, such as landlords and tenants.
  • Payroll tax credits to retain employees and enhance cash flows.
  • Interest expense allowed up to 50% of Adjusted Taxable Income; many real estate companies already elected out of 163(j) as an electing real property trade or business (RPTOB).
  • Elimination of the $500,000 excess business loss limitation rule for joint tax filers.

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