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Tax relief options for real estate brokers

May 12, 2020

In our previous piece, we went over the PPP and EIDL, aka the biggest programs that can help real estate brokers who are experiencing hardship during the COVID-19 pandemic. Click here to read that article, which discussed everything from eligibility to calculating the PPP loan amount.

Now we’ll cover two big tax relief options for real estate. These have the potential to be even more significant and offer even more help than the PPP and EIDL.

1. Net operating losses (NOLs)

In 2017, the Tax Cuts and Jobs Act (TCJA) eliminated the NOL carryback provision. However, with the passing of the CARES Act, you are now allowed a five-year carryback for NOLs arising in the 2018, 2019 and 2020 tax years. Additionally:

  • The 80% NOL limitation and excess business loss limitation have been temporarily repealed for tax years beginning before 2021, meaning you now can use 100% of your losses.
  • Any NOLs that are unused in the carryback can be carried forward indefinitely.
  • Taxpayers still have the option of electing to forego the five-year carryback and carry the losses forward only.
  • The loss carryback will not be affected by the different tax rate structure that existed prior to 2018.
  • Notice 2020-26 grants a six-month extension of the time to file Form 1045/1139 by taxpayers for the carryback of an NOL that arose in any tax year that began during calendar year 2018 and ended on or before June 30, 2019.

This chart helps make it clearer what the carryback periods are based on the NOL year:

NOL carryback rules

2. Qualified improvement property (QIP)

Another big change is with QIP, which is any improvement made to an interior portion of nonresidential real property at any time after the property was placed into service.

Previously, because of a mistake in the TCJA, you had to depreciate it over 39 years. The CARES Act fixed what was called the “retail glitch,” issuing a correction that the depreciable life has been reduced from 39 years to 15 years, retroactive to January 1, 2018.

This fix allows you to claim 100% bonus depreciation in QIP placed into service after 2017 and offset it against your income, meaning you can get a refund on taxes paid for those years and even for 2020.

Read more: The “retail glitch” is finally fixed — and it applies to non-retail commercial properties too

Gaining significant refund dollars

If you need assistance understanding exactly how these tax law changes benefit you, contact Wipfli. We can help clients obtain significant refund dollars — in some cases much greater than the loan amounts they’d be eligible to receive under the PPP and EIDL. Our cost segregation team can also break out QIP, helping to generate the maximum bonus depreciation.

You can learn more about the tax law changes and how they benefit you in our webinar: COVID-19 & CARES Act: Tax updates and implications for the real estate industry.

Visit our COVID-19 resource center for more articles that can help you stabilize today and prepare for tomorrow. See our articles on:

Construction and real estate
Business finance
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Author(s)

Dannielle Lewis
Dannielle Lewis, CPA
Senior Manager
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James Lockhart
James D. Lockhart, JD, LLM, CPA
Partner
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