Real estate owners should pay close attention to the provisions in the CARES Act. In addition to the major business funding benefits, there are several provisions that specifically benefit real estate owners and investors, according to Phil Jelsma, an attorney at Crosbie Gliner Schiffman Southard & Swanson. These benefits includes removing limitations on net business losses, pass-through losses and qualified improvement on leasehold properties.
In terms of net business losses, Jelsma, a partner at Crosbie Gliner Schiffman Southard & Swanson, says, “The CARES Act temporarily suspends the limitations on net business losses that an individual can use to offset income from other sources. Initially, this was kept at $250,000 for a single household or $500,000 if married filing jointly. The new law suspends this cap for tax years 2018, 2019 and 2020.”
The 2017 tax legislation limited pass-though loss, but the CARES Act suspends that limitation as well. “The new measure also allows losses from pass-through, such as LLCs and partnerships, to offset other sources of income – suspending a new loss limitation,” says Jelsma.
The CARES Act also corrects an error in the 2017 tax legislation regarding qualified income improvements on leasehold properties. “As a result of an error in the Tax Cuts and Jobs Act of 2017, these improvements went from being depreciable over 15 years to 39 years,” says Jelsma. “The CARES Act corrects this problem with qualified improvement property, which pertains to any leasehold improvements made to the interior portion of a nonresidential structure if the building has been a place of service.”
The solution is a technical correction to allow properties to improve over 15 years, according to Jelsma, adding that it “allows not only these improvements to be depreciated over 15 years but potentially expensed immediately under the bonus depreciation rules. This means that some real estate investors may amend their 2018 and 2019 tax returns.”