In March 2020, the government created new legislation that would provide financial aid and assistance to individuals and real estate investors in response to the coronavirus pandemic. Below are a list of topics covered:
IRS and DOL Notices
IRS Notice 2020-18
- Payments and filing deadlines for Federal income tax returns that are due on April 15, 2020 are moved to July 15, 2020. Form 4868 or Form 7004 may not be required.
- Federal income tax payments with less than $1MM can be paid on July 15, 2020 with no penalties or accrued interests.
- Q1 2020 tax payments can be paid on July 15, 2020
IRS Notice 2020-15
- A health plan that otherwise satisfies the requirements to be high deductible health plan (HDHP) under section 223(c)(2)(A) of the IRC Code will not fail to be an HDHP under section 223(c)(2)(A) merely because the health plan caters health benefits associated with testing for and medication of COVID-19 with no deductible, or with below minimum deductible for an HDHP. Hence, any individual covered by this health plan will still be qualified from being eligible under section 223(c)(1) who may make tax-favored contributions to a health savings account (HSA).
- The notice allows HDHPs to give help benefits for testing and medication of COVID-19 without applying for a deductible or cost sharing.
DOL Guidelines: Families First Coronavirus Response Act
The Families First Coronavirus Response Act (FFCRA)
Effective date starts on April 1, 2020 through December 31, 2020;
- Determining the 500-employee threshold
When counting the employees to determine if you have fewer than 500 employee the following must be included:
- All full-time and part-time employees working or on leave
- Temporary employees (jointly employed by an employer and employment agency under FLSA)
- Daily laborers provided by a temporary agency
Independent contractors (under FLSA) or employees who have been laid off or furloughed are not counted.
- Overtime hours is included when calculating pay due to employees
- Paid sick leave and emergency family/medical leave expansion is not retroactive
- Employers with fewer than 50 employees are exempted from FFCRA
- Employers with fewer than 25 employees may not have to restore the position of employees who take the paid sick leave
IRC Sec 139
- Payments to the employees are not taxable but remains fully deductible to employers as long as the reimbursements are necessary personal, family, or living expenses incurred as a result of COVID-19 pandemic
What payments are covered under the provision?
- Medical expenses not covered by an insurance
- Employee health expenses like over-the-counter drugs and hand sanitizer
- Employee or employee’s family member funeral costs
- Costs from working remotely throughout the pandemic (computer, cell phone, printer, supplies and increased utility cost)
- Employee’s child care or family members that are homeschooled during the pandemic.
A Summary of Families First Coronavirus Response Act
Emergency Paid Sick Leave Eligibility
Employees of employers with less than 500 employees are qualified for paid sick leave when the qualifying conditions met: (Reasons for qualifying…..)
- When an employee is subject to federal, state, or local quarantine or isolation as a result of COVID-19.
- The employee that has been advised by a health care provider to self-quarantine due to related COVID-19 concerns.
- The employee is experiencing COVID-19 symptoms and seeking for a medical diagnosis.
- The employee is caring for a family member who is under federal, state, or local quarantine or has been advised to self-quarantine due to COVID-19 concerns.
- The employee caring for their child who has not been able to go to school due to COVID-19 precautions.
- The employee is experiencing similar conditions specified by Secretary of Health and Human Services.
Emergency Paid Sick Leave Benefit
Beginning of April 2, 2020;
- Full-time employees receive 80 hours of paid sick leave.
- Part-time employees receive the equal amount of time they have worked on during a two-week period.
- For qualifying reasons 1, 2, and 3 above, employees receives paid sick leave at regular rate, however, the amount paid should not exceed $511 a day and $5,110 total.
- For qualifying reasons 4, 5, and 6 above, eligible employees receives paid sick leave two-thirds of their regular rate with the amount paid not exceeding $200 per day and $2,000 total.
- Paid sick leave cannot be carried over to the next year.
- Paid sick time ends when the employee’s next scheduled work shifts immediately following the termination of the need for paid sick time.
- The Secretary of Labor will provide guidelines to help employers calculate their employee’s leave benefits.
Emergency Expansion of the Family Medical Act Eligibility
- Applicable for employers with less than 500 employees.
- The DOL will provide guidance for companies with below 50 employees on how they can be exempted from the expansion.
- An eligible employee can take up to 12 weeks of leave when unable to work because of caring for a child below 18 years old of age and whose school or place of care is closed due to COVID-19 concerns.
Emergency Expansion of the Family Medical Leave Act Benefit
- A qualified employee can take up to 12 weeks of leave. The first 10 days are unpaid but can choose to use the accrued paid sick leave or vacation during the unpaid period.
- After the 10-day period, an employee can receive two-thirds of the normal wages from the employer for the number of hours scheduled regularly to work with a maximum of $2,000 per day and $10,000 in total.
Payroll Tax Credits
- Eligible employers that pays qualifying payments can retain a federal payroll taxes equal to 100% of the amount of qualifying sick and child-care leave payments.
- The available payroll taxes for retention are withheld federal income taxes, Social Security and Medicare taxes (employee and employer share).
- If the amount of payroll taxes is not sufficient to cover qualifying sick and childcare payments, the employer can file a request for an accelerated payment from the IRS which may take 2 weeks or less to process.
- The qualifying leave credit amount is deducted from the amount of payroll taxes withheld and payable to the IRS.
Small Business Exemption
- Small businesses with less than 50 employees are eligible for exemption from the leave requirements relating to school closings or child care unavailability where the requirements will be risky for the business to continue.
- There will be a basis of simple and clear criteria to make the exemption applicable.
- Emergency guidance and rulemaking will be provided by Labor to make these standards clear.
- A temporary non-enforcement policy will be issued by the Labor to provide employers a time to comply with the Act.
- No enforcement action will brought against an employer who violates the Act as long as employer has acted reasonably and in good faith to abide by the Act
- A compliance assistance during a 30-day period would be focused instead.
Coronavirus Aid, Relief, and Economic Security Act
Unemployment Benefits on Steroids
- Self-employed workers and workers who are not employed due to COVID-19 reasons have their coverage expanded.
- Eligible workers can receive extra $600 per week on top of normal unemployment benefits on top of the state benefit.
- Employees who are working from home and receiving sick leave or paid family leave will not be covered.
Stimulus Checks/Payments to Individuals
- Gives one-time direct payment to individuals and families within the next three weeks.
- Individuals who have $75,000 income can claim $1,200 payment.
- For individuals with above $75,000 income , a $5 rate will be phase out for every $100
- For individuals making $99,000, the payment is completely phased out.
- Combined incomes from married couple with up to $150,000 can receive $2,400
- For married couples with combined income more than $198,000, the payment is completely phased out.
- An additional $500 per child is also provided when subject to the phase out. Qualifications and benefit levels are based on 2019 tax income filings if the taxpayer has filed. Otherwise, 2018 tax data and Social Security data can be used in place of 2019 data. Individuals are not required to repay any overpayment when filing for 2020 taxes.
- For families and individuals including the disabled with no income or income tax liability, are eligible to claim the credit
Waiver of 10% Early Withdrawal Penalty for Retirement Account
- Qualified individuals can withdraw up to $100,000 from retirement accounts without any penalty.
- Qualified individuals can pay the tax liability from withdrawal in a three year period.
- Qualified individuals can repay their retirement plans to make up for the money withdrawn covering for COVID-19 related expenses.
- The distribution must be a “coronavirus distribution” a distribution taken from a qualified retirement account around January 1, 2020 and December 31, 2020 to an individual who is:
- Diagnosed with COVID-19 by a CDC test
- Whose spouse or dependent is diagnosed with COVID-19 by a CDC test
- Experiencing unfavorable financial consequences as a result of being quarantine, furloughed, or laid off, reduced worked hours, unable to work due to lack of child care, closing or reduced working hours of businesses owned or managed by the individual
- The minimum distribution rules for retirement accounts are temporarily waived to prevent retirees from selling retirement assets during the downtown
Enhanced Charitable Giving
Beginning in 2020;
- Individuals can claim $300 above-the-line deduction on charitable donations. There’s no need to itemize when claiming the deduction.
- Limitations on charitable cash contributions are temporarily suspended and limitations on contribution of food inventory are increased.
Student Loans Flexibility
- Colleges and universities can award emergency financial aid grants with no regards in the usual calculation.
- The Department of Education can exclude some loans for students who are not able to remain enrolled as a result of a qualifying emergency.
- Payments are suspended for student loans under the Federal Family Education Loan and Direct Loan programs with no interests until September 30, 2020 and collection efforts will stop during that time.
- Employers can provide up to $5,250 annual incentive to employee student loan payments on a tax-free basis for one year.
Employee Retention Tax Credit
- Employers with retained employees during a pandemic are eligible for a refundable payroll tax credit equal to 50% of the qualified wages paid to employees. The 50% credit can offset the employer’s share of Social Security taxes for up to $10,000 per employee.
- An eligible employer is any employer carrying on a trade business during 2020 and with respect to any calendar quarter for which:
- The business operations were partially or fully suspended due to orders from a government authority limiting commerce, travel or group meetings
- The business experienced a significant decline in gross receipts defined as a calendar quarter’s gross receipts being less than 50% of the prior year’s calendar quarter’s gross receipts
- For employers with more than 100 full-time employees, qualified wages are wages paid when they are not providing services due to the COVID-19.
- For eligible employers with fewer than 100 full-time employees, all employee wages qualify for the credit.
Net Operating Losses
- Prior to the 2017 TCJA, NOLs could be carried back two years and carried forward indefinitely. After the 2017 TCJA amended IRC Sec 172, NOLs could not be carried back and the carry forward was limited to 80% of taxable income.
- The Act struck the 80% taxable income limitation for any NOL arising before January 1, 2021. Additionally, for NOLs arising in 2028, 2019 or 2020, taxpayers can carryback the NOL five years.
- The election to carry back an NOL must be made by the due date, including extensions, of the taxpayer’s 2020 tax return.
- There is a temporary removal of excess business losses under IRC Sec 461(l) which was added as part of the 2017 TCJA. This section provides that the amount of net business loss an individual may use to offset other, non-business sources of income is capped at $250,000 (if single and $500,000 if married filing jointly). Any excess loss is converted into a net operating loss.
- The removal of Sec 461(l) is retroactive to 2018 and will be reimplemented in 2021. When this section kicks back in during 2021, wages will no longer be considered “business income.”
Planning Considerations for Real Estate Investors
Increased Interest Expenses for Businesses
- The 2017 TCJA limited business interest to 30% of adjusted taxable income for taxpayers. The Act increased the limitation to 50% of taxable income for 2019 and 2020.
Technical Amendment for Qualified Improvement Property
QIP is generally defined as any improvement made to the interior portion of a nonresidential building after the building was placed in service.
- Qualified Improvement Property has a 39-year life and disqualified QIP for 100% bonus depreciation
- The act has a technical correction by including QIP as eligible property for 100% bonus depreciation
Foreclosure Moratorium and Consumer Right to Request Forbearance
- During covered period, a borrower with a Federally backed mortgage loan experiencing a financial hardship due directly or indirectly to COVID-19 may request forbearance on the Federally backed loan regardless of delinquency status.
- Requests must be submitted in writing to the loan servicer affirming that the borrower is experiencing financial hardship during the COVID-19 pandemic.
- Upon submission of a request for forbearance, the forbearance shall be granted for up to 180 days and can be extended for an additional 180 days.
- The servicer needs nothing other than the borrower’s attestation of financial hardship in order to grant the forbearance of the loan.
- During the period of forbearance, no fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract, will accrue on the borrower’s account.
- Foreclosures cannot be initiated or executed for 60 days beginning March 18, 2020.
Forbearance of Residential Mortgage Loan Payments for Multi-Family Operators
- During the covered period, a multi-family borrower that was current on payments through February 1, 2020 with a Federally backed multi-family mortgage plan experiencing a financial hardship due to directly or indirectly to the COVID-19 pandemic may request a forbearance.
- The forbearance request can be written or oral and must document the financial hardship resulting from COVID-19.
- The loan servicer may provide forbearance for 30-days and extend the forbearance period for up to two additional 30-day periods upon request of the borrower provided that the borrower’s request for extension is made at least 15 days prior to the end of the forbearance period.
- Renters are protected during the forbearance period for multi-family operators who request forbearance. This means that operators who are forbearance cannot evict or initiate eviction of tenants for nonpayment of rent or other fees nor can the operator charge the tenant with late fees or other penalties as a result of nonpayment of rent.
Temporary Moratorium on Eviction Filings
- During a 120 day period beginning on the date the Act is signed into law, the landlord may not initiate legal action to recover possession of the property from the tenant for nonpayment of rent or other fees charges.
- The landlord may also not charge fees, penalties, or other charges to the tenant related to the nonpayment of rent.
Landlord may not require the tenant to vacate the unit before the data that is 30 days after the date on which the landlord provides the tenant with a notice to vacate. The landlord may not issue a notice to vacate until the 120 day period, after the Act has been signed into law, has passed.