Did Stimulus Bill include change to depreciation limits?

Question

I ran across an article (I think it was CNN) that made reference to some change to the tax code that was included in this new stimulus bill.  Something about a change to depreciation limits.  The article framed it as a tax break for the 1%.  It wasn’t clear if it was referring to the passive loss rule or something else.  Does anyone know about this?  Looking for the real scoop?

Yonah Weiss · Answer

Great recap @Natalie Kolodij. One thing I noticed is that the return of NOL carry back is only temporary, and only back to 2018. Not totally back to like it was pre-TCJA

Natalie Kolodij · Answer

There are a few things floating around:

A NY times article that made it seem like some huge amazing new break exists for the average investor- it doesn't.

Nothing changed related to passive losses, so if you own a bunch of rentals and generate huge passive losses you can't use from depreciation (that are capped due to income limits) no change there unfortunately.

They just switched NOL (Net Operating Losses) back to what they were pre TCJA. Where we can carry them back 5 years, that applies to operating losses- not passive.

So if a developer has huge losses they can carry those back potentially and get a refund.

The other thing was in TCJA qualified leasehold improvement was supposed to be designated as 15 year property and basically they forgot to put the wording in. So our hands were tied as tax pros because the law stated it was 39 year....when we all knew it was 15.

They also corrected that. So if you've had any captialized leasehold improvements (think store build out) you can potentially correct that to 15 year now- which would qualify for 100% bonus depreciation.

Kevin Gray · Answer

@Darrell Wallace. That article has been shared with us multiple times, but unfortunately it’s a little misleading.  This is referring to “excess business losses” which is the concept of limiting losses in any one business to 500k (MFJ) in any given year to offset other income.Real estate is the major industry benefiting from this because of depreciation increasing paper “losses”.  Most businesses with a loss of hundreds of thousands of dollars wouldn’t stay in business.  Developers of multi-million dollar properties can use depreciation and various techniques to create six to seven figure losses on paper.  The excess business loss rules would cap the losses to 500k in a year.  It appears this cap has been changed or erased all together. The concept of being a real estate professional has not changed.  There are still limits on residential real estate investors regarding passive losses.  The article points out the fact that these super wealthy may have other income (like investment gains) to offset with the massive real estate losses.  There's no new rule allowing real estate losses to offset investment capital gains as the article makes it sound.  There are ways under the current tax code to do it, but that's more complicated and something worth talking to a tax pro about.

Here is a link to IRS website on what the article is referring to...https://www.irs.gov/newsroom/excess-business-losses

Natalie Kolodij · Answer

Carryback is related to NOL's

RE pro allows passive losses

Different types of losses

But if you qualify as RE pro in a year it does not Free up your prior losses at all, and you can't amend to utilize them beacuse you didn't qualify in those earlier years.

Angela Hsu · Answer

@Natalie Kolodij if one qualifies as Real Estate professional in 2020 and has significant net operating losses, can these be carried back to the prior 5 yrs to offset active W2 income even though one was not a real estate professional in years 2019, 2018, 2017 etc?

Natalie Kolodij · Answer

We may be saying the same thing but just to clarify

I don't believe you can only carry back to 2018

For NOL's generated in 2018,2019, or 2020 they can each be carried back 5 years

"In general- in the case of any net operating loss arising in a taxable year beginning after December 31,2017, and before January 1, 2021 ' Such loss shall be a net operating loss caryback to each of the 5 years preceeding the taxable year of such loss"

Natalie Kolodij · Answer

Nope no change to RE professional qualifying status.

Darrell Wallace · Answer

@Natalie Kolodij.  Has there been any mention of a lessening the 750 hour threshold for qualification as Real Estate Professional?  This was the first year we (my wife) were planning on qualifying for that, with the hopes of writing off some of the REI losses against my active income.  However, with the quarantine lasting a month or more, it seems like it will be much harder for her to have enough active participation hours documented to be able to qualify.

Jaysen Medhurst · Answer

@Darrell Wallace, this article in Accounting Today references "Correcting an error in the Tax Cuts and Jobs Act that prevented qualified improvement property from qualifying for 100 percent bonus depreciation."

Darrell Wallace · Answer

https://www.cnn.com/2020/03/27/investing/tax-bill-real-estate/index.html

Did Stimulus Bill include change to depreciation limits?

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