CARES Act Bullet Points from an Investor
CARES Act Highlights
I have done a ton of research this morning on the new act that has passed the Senate and is currently awaiting approval by the House, which is expected to pass as-is. I thought I would share my bullet points and commentary with you. The bill is almost 900 pages, the summaries were 35+ pages, and this is roughly 3 pages, so there is a lot of detail missing but I hope this captures the majority of the important points that I thought were relevant to me and and other landlords here on BP. As a landlord and not a flipper, my commentary and filtering of information is from the perspective of a landlord. I hope a flipper can use this information to do their own commentary article. If you do please post it in the comments.
I am including a link at the end to a more in-depth summary that summarizes each section of the act, (not written by me!).
I am not an attorney or CPA, just a landlord who wanted to figure out how all of this applies to me and my business. I am sure there are mistakes in how I interpreted some of this so please leave comments if you are an expert in those fields find them. This is not legal or tax advice or meant to direct your actions, it is simply a summary of what I understood from my research, some of which is linked at the end. Lots of this will require further guidance from the affected agencies and will require guidance from your trusted professionals. I use the phrase "talk to your CPA" A LOT throughout so please make sure you do so.
SBA Payroll Protection Program (PPP) Loans:
o Include self employed individuals and non-profits
o Cap of 500 employees (with some exceptions)
o Max rate of 4% interest
o No Prepayment penalty
o Deferment of payments for at least 6 months
o Loan forgiveness equal to amount spent in first 8 weeks on payroll costs, interest on any mortgage payments, rent payments, utility payments (Page 4 of the attachment- this is HUGE, if we qualify)
o Loan forgiveness scaled down for reduction in employees and employees hours.
o Borrowers that rehire employees already laid off will not be penalized for having reduced payroll
o Cancelled debt from these loans is not included on borrowers taxable income
It is unclear if landlords will qualify for this. All of the language I have read indicates that we will, but again I am not an attorney. We may need specific guidance in the coming weeks. If we do qualify, this could be an incredible opportunity to borrow low interest money to essentially cover the interest on our mortgages or any other payroll expenses.
o All personal guarantees waived below $200,000
o Credit elsewhere requirement waived. There is generally a requirement to exhaust all other sources of credit before applying for these.
o Applicants can request an advance on their loan up to $10,000 which is not to be repaid, even if denied the loan (you must "pre qualify" to be eligible to for this. I could not find what that meant specifically)
Again, unclear if landlords qualify, but if so this is another option available. The PPP sounds more applicable to us landlords but again that is unclear.
SBA will pay the next 6 months of payments on existing SBA loans starting on the next payment due.
My understanding is that SBA generally does not lend to Landlords, so I don't expect many landlords to have an existing SBA loan, but if you do then this is great!
o Temporary unemployment assistance to workers not traditionally eligible for unemployment (Self-employed, limited work history, etc). (Lots of question marks for me around this, but could greatly affect tenants who are gig workers or self-employed)
o Provides additional $600 per week payment to each recipient of unemployment insurance for up to 4 months
o Provides funding to states who pay unemployment benefits as soon as they are eligible rather than waiting a week.
o Additional 13 weeks of unemployment benefits after state unemployment expires
Compensation for those whose hours have been cut but not laid off (varies by state)
REBATES (The big point everyone was looking for): Page 10 of the attachment
o All non-dependant US residents that make under $75,000 are eligible for $1,200 rebate, with an additional $500 per dependant child.
o The IRS will use 2019 tax returns or 2018 if not filed yet.
o Most citizens will not need to do anything to receive this. (Look for guidance if your address or something changed since you last filed). It is unclear if these will be physical checks, direct deposits, or both. Fraud surrounding this does concern me. It is also unclear on timing of these payments.
Direct cash payments to most of our tenants should be really helpful in us collecting rent!
Waives the early withdrawal penalty for distributions up to $100,000 on retirement accounts. This is huge if you have a decent sized IRA or 401k and want to either temporarily take it out to cover any rent shortfalls, or re-allocate it to your real estate portfolio. See the point below about further ramifications.
Income attributable to those distributions will be taxable over 3 years, and distributions may be recontributed within 3 years without regard to that years cap on contributions.
There are restrictions on this, go to the bottom of page 10 and top of page 11 to read some of them. Like all of these points, talk to your CPA about how this applies to you.
Up to $300 of cash contributions to charities can be directly deducted from your taxes regardless of whether or not you itemize. Limits of cash contributions are suspended for individuals in 2020. Donate if you can! Charities are doing a lot of great work right now and the government is incentivising you to donate to them!
Employers can contribute up to $5,250 for employees student loans and expense the payments. If you have any employees or interns, this could be a great perk with new tax benefits
50% refundable payroll tax credit for any business who fully or partially shut down or saw a 50% reduction in revenue from the same quarter last year. Provided for the first $10,000 of comp per employee.
Deferment of payroll taxes to be paid over the next 2 years.
This should help employers keep people working, including our tenants!
Losses incurred in 2018, 2019, or 2020 can be used to fully offset income back 5 years. Talk to your CPA about possibly amending your prior tax returns and receiving a refund for taxes paid.
Interest expense deductions limits go from 30 percent to 50 percent in 2019 and 2020. Talk to your CPA about amending 2019 if you already filed.
Immediately write off IMPROVEMENTS to buildings since the Tax Cuts and Jobs Act (I believe 2018 tax year). If I am reading this correctly, this is HUGE for any property owners- definitely talk to CPA about this if you made improvements to rentals over the last few years. This is not very well explained in this summary so there could be some exclusions on this. If it is what I think it is, we can go back and claim any improvements made to our buildings as expenses which should help most of us generate HUGE paper losses, limiting our tax liability and hopefully entitling us to refunds. Keep a close eye on this and talk to your CPA because this could have major implications on your portfolios.
Deferment of all Federally owned student loans through Sept 30, 2020. Sweet!
180 Days forbearance for borrowers of federally backed mortgage loans. This includes landlords! This specific provision is only available to you if your rental property mortgage is backed by the federal government, which generally only happens if it is owned in your name, not an LLC. If your loan is not federally backed, many banks are still offering work outs including a few months of interest only payments or payment deferment. Check with your bank on this.
90 days forbearance for multifamily (5+ unit) borrowers with federally backed mortgages- these borrowers may not evict or charge late fees to tenants.
120 day eviction moratorium on evictions for landlords who's mortgage is federally backed. Only applies if your mortgage is federally backed. If not this does not apply, but tread carefully if you try to file within the next few months, your loan might be federally backed and you don't know it. Check with your bank.
I have not been able to find good references to what it does to the term of your mortgage if is placed in forbearance, especially if you have some sort of balloon payment. If someone has a good source for this please leave it in the comments!
Specific relief to Healthcare workers and Airline workers. I included this point because a lot of our tenants work in these industries. For more details, read through the middle pages of the attached summary, roughly page 14-17 for healthcare and pages 33-35 for airline and airline support employees. There are sections outside these pages as well.
For the full 35 Page summary use this link: https://scalingup.com/wp-content/uploads/2020/03/CARES-Section-by-Section-Scaling-Up-.pdf?fbclid=IwAR1ssjjot9d38gbU2urUHeROkJxKvgrgGxWl1OOFzNBmtaqJulyEtJB4sRo
Stay safe out there and I hope you get to use a ton of this to your advantage!