$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.

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.



New REIT Bill Coming?

By:  Amanda WilsonCapitol building

In late April, Senator Orrin Hatch introduced Senate bill 915, the Real Estate Investment and Jobs Act of 2015.  When a foreign person invests in property in the U.S., that person is subject to U.S. tax when he/she/it disposes of their real estate investment under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”).  FIRPTA tax applies to the disposition of stocks of U.S. real estate investment trusts (“REITs”).  FIRPTA tax is a damper on encouraging foreign investment in the U.S.

To address this negative impact on investing, the bill increases and clarifies the existing FIRPTA exemptions that are available to foreign investors holding REIT stock.   For example, the bill increases from 5% to 10% the amount of REIT stock that an investor can hold and still qualify for the publicly traded REIT FIRPTA exception.  The bill also clarifies what it means to be a domestically controlled REIT, providing helpful guidance for another common FIRPTA exception.

While these changes are good, the bill is not all good news.  The bill also increases from 10% to 15% the general FIRPTA withholding rate.

If you deal with REITs, be sure to keep an eye on this bill for additional developments.


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