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$2.2 Trillion Stimulus Bill Includes Big Benefit For Real Estate Investors and Other Taxpayers With Excess Business Losses

By: Amanda Wilson

The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act was passed by Congress and is expected to be signed into law by President Trump. This $2.2 trillion stimulus bill contains an important tax benefit that so far has received little media coverage, but could provide a big benefit for many taxpayers, especially in the real estate area.

The 2017 Tax Cuts and Jobs Act imposed a limitation on business losses, which provided that individual taxpayers could only claim up to $250,000 ($500,000 for married individuals filing a joint return) of excess business loss in a given tax year. Excess business loss is the amount by which all of the taxpayer’s deductions attributable to his or her trades or businesses exceeds all of the taxpayer’s income or gain attributable to such trades or businesses. Any disallowed excess business loss is carried forward and treated as a net operating loss of the taxpayer. This limitation is particularly applicable in the real estate industry, as taxpayers that hold real estate often find themselves with significant depreciation deductions that they cannot utilize to offset non-business income, including capital gains from passive investments.

The CARES Act removes the excess business loss limitation for the 2018 through 2020 tax years. As a result, taxpayers that previously were unable to utilize their business losses fully to offset their capital gains or non-business income will now be able to use these losses for 2018 through 2020. This can result in a significant tax benefit as taxpayers are getting ready to file their 2019 tax returns (now due July 15). In addition, taxpayers should consult their tax advisors to see if filing an amended return for 2018 would result in a tax refund from the Internal Revenue Service.

Be sure to visit our Coronavirus (COVID-19) Response Team page, to keep up to date on the latest news.

REITs Targeted In Extenders Bill

Capitol buildingBy:   Amanda Wilson

Earlier this year, I discussed the IRS’s recent no rule policy on spin-offs, and how that would likely have a chilling impact on spin-offs, particularly the common practice of businesses spinning off their real estate in a REIT (discussed here).  My prediction is coming true as this week Yahoo announced that it was cancelling its Alibaba spin-off since it could not get an IRS private letter ruling that the spin-off would be tax-free.

Well, REITs are being further targeted.  Yesterday, a two-year tax extenders bill was introduced in the House.  This was not a surprise.  The surprise was that the bill includes two provisions that will have major impacts on REITs.  First, the bill provides that a spin-off of a REIT will only be tax free if, immediately after the distribution, both the distributing and controlled corporations were REITs (the IRS no rule policy had a similar provision).  So a REIT can divide and spin-off its assets, but existing C corporations would no longer be able to spin-off their real estate in a REIT.  If enacted, this provision would currently apply to deals in progress.  In other words, any spin-offs currently in the planning stage wouldnot be grandfathered in and would be killed by this bill.

The bill also introduces a new rule that targets fixed percentage rent and interest income received from a related party.  If a REIT receives such rent or income from a single C corporation tenant and it exceeds 25% of the combined rent and interest income received by the REIT, the new bill would provide that this income no longer qualifies as rents from real property and interest (i.e., is no longer good REIT income).

Stay tuned to see what happens!

Revamping U.S. Taxation of Multinational Corporations?

istock-tax-blog-cliffBy:  Amanda Wilson

The Obama administration and top lawmakers are in discussions regarding a potential overhaul of how the United States taxes U.S. multinational corporations.  Topics under consideration include eliminating the U.S. approach of taxing U.S. companies on their world wide income and imposing a one-time tax on offshore earnings (earnings that have not been repatriated back into the U.S.).

The talks are in early stages but are definitely something to keep an eye on.

 

 

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