All Forum Posts by: Lance Lvovsky

There are some CPAs here in the CA area, as well as many from all parts of the country. With properties out of state, make sure your CPA is well versed in state taxation.

The states you mentioned are favorably viewed - but speak to your attorney for advice specific to you.

Forming an LLC you should start with the attorney and also speak to a CPA. If it is a single member LLC or multi-member LLC, the taxation is different. Further, you will want guidance on potential TX filing requirements as well.

You own 100% of the capital and profits interest but want to give a percentage out to an investor? Can't be a single member LLC as you will need to report on a K-1 to an investor with a capital and/or profits interest.

Might be easiest to structure as an interest payment where you pay x% of quarterly profits to your investor, but your investor is not an equity investor, rather they are loaning you money. I suggest to speak to a CPA and attorney before proceeding.

This is not retroactive to 2019 contributions. 

Distributions must be made on or after
January 1, 2020 and before December 31, 2020

This is why having good accounting records are critical. Moving forward open a QBO subscription. Have 1 bank account and 1 credit card used for this rental to track all income and expenses. Will make your life much easier.

In addition to the tax relief introduced under the CARES Act, there are a number of other provisions non-tax related that are designed to help small businesses during this time of crisis.

As always, consultant your tax and business advisor on how to best employ these various tools that are now available to stimulate your business and your economy. And remember, many of these provisions also apply to business that are service businesses (i.e. attorneys, medical professionals, architects, etc.)

Below is a summary of some of the business related provisions, as well as some of my other observations that can help you get through this dire time, and keep your business afloat.

$300B Emergency Coronavirus Relief

Part of CARES Act. SBA will provide your business (must have payroll) with loans and so long as you continue payroll, the government will forgive your loan. Loan funds can be used to maintain operating expenses and paying bills (rent, payroll, insurance, utilities, etc.)

SBA’s Economic Injury Disaster Loans (EIDLs)

Limited to working capital for small businesses and private nonprofit organizations. They are available to small businesses directly affected by the COVID-19, or that offer services directly related to these businesses.

Applicants must have good credit history, the ability to repay and be physically located in disaster areas (economic nexus does not suffice). Note, EIDL loans are only available to businesses without access to credit elsewhere, such as existing lines of credit.

Eligible industries include, but are not limited to, hotels, recreational facilities, manufacturers, sports vendors, owners of rental property, restaurants, retailers, travel agencies and wholesalers. Conversely, casinos and other gambling businesses, agriculture enterprises, religious and charitable organizations are ineligible.

Business Interruption Insurance

Most policies exclude interruption for viruses. Check your policy. Depending on how broad such exclusion is, an insurance company may challenge the right of a business to file a business interruption claim. Check whether the terms of the insurance policy allow for the filing of a business interruption claim as a result of shutdowns imposed by government authorities. Check whether the insurance policy covers business disruptions resulting from the loss of a key supplier’s services/products, as a result of COVID-19.

Lastly, ask your bank about payment deferrals. Banks may be willing to work with you on deferring payments of both principal and interest. Don't forget to check with banks that gave you commercial loans as well.

 My pleasure. I created a thread to help BP folks understand the new tax law that was introduced under the CARES ACT.

On Friday, March 27, the President signed the massive $2 trillion coronavirus Stimulus Bill (the Coronavirus Aid, Relief and Economic Security [CARES] Act) to provide assistance to workplaces and employees. The law provides many benefits intended to deliver cash into the hands of individuals and businesses, as well as many other tax provisions.

Below is a summary of the various tax provisions provided under the law. Please remember to always consult with your tax advisor as how to best apply the law to your fact pattern.

INDIVIDUAL PROVISIONS

CASH REBATES

One of the most publicized portions of the law involves cash payments of $1,200 to individuals and $2400 to married couples.

An additional $500 may be paid for each qualifying child. These amounts are subject to reduction if the individual’s Adjusted Gross Income (AGI) exceeds $75,000 ($150,000 for a married couple). Nonresident alien individuals and a person who is the dependent of another is ineligible to receive the payment.

The cash payments will be based on the recent tax information available to the IRS, based on the 2018 or 2019 tax return filed, but is subject to a “true-up” based on 2020 tax return information.

RETIREMENT FUNDS

The law makes significant changes to retirement plan payment and loan rules.

• Required Minimum Distribution rules for qualified plans and individual retirement accounts are suspended for 2020. This will avoid the plan having to sell plan assets when they may be at their lowest values.
• Coronavirus-related distributions of up to $100,000 can be made with the related income tax payable over a three-year period. Additionally, the amount can be recontributed back to plan over a three-year period without affecting that year’s contribution limits.
• The limits on the amount of loans that can be taken from a qualified plan for coronavirus-related purposes is increased to the lesser of $100,000 or 100% of the individual’s accrued benefit.

EMPLOYER PAYMENT OF STUDENT LOANS

Certain employer payments of employee student loan amounts made before January 1, 2021, whether paid to the employee or the lender, can be excluded from income as an Educational Assistance Benefit.

CHARITABLE CONTRIBUTIONS

To incentivize contributions made during 2020 to the needy:

• Up to $300 of charitable contributions can be taken as a deduction in calculating AGI for the 2020 tax year. This will provide a tax benefit even to those who do not itemize.
• For the 2020 tax year, a taxpayer can elect to disregard the 50% AGI limitation on deductible contributions. This means the AGI ceiling is effectively 100% for the 2020 tax year.

BUSINESS TAX PROVISIONS

EMPLOYEE RETENTION CREDIT

Eligible employers are allowed a credit against employment taxes for each calendar quarter equal to 50% of qualified wage (including health benefits) paid to employees.

This amount is limited to $10,000 of wages paid to an employee for all calendar quarters.

An eligible employer is one which is in a trade or business:

1. Whose operation is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to COVID-19; or
2. Who has a “significant decline” in gross receipts (i.e., there is a decrease to less than 50% of the gross receipts for the same quarter in the prior year).

Different rules apply as to the covered wages depending upon the number of employees the employer had in 2019. Under the statute, tax exempt entities are also able to take advantage of this credit.

However, this credit is not available to employers receiving a Small Business Interruption Loan under section 1102 of the Act or if a Work Opportunity Tax Credit is allowed for the employee.

PAYROLL TAX HOLIDAY

There is a deferral of the employer’s share of payroll taxes for the period beginning on the date of enactment to January 1, pursuant to an SBA loan 7A or under Act section 1109.

NET OPERATING LOSSES

The law suspends rules relating to Net Operating Losses instituted under the Tax Cuts and Jobs Act (TCJA). Under the TCJA which was signed into law in December 2017, net operating losses were no longer eligible to be carried back, and their usage, when carried forward, was limited to 80% of taxable income. Under the CARES Act, net operating losses created in the 2018, 2019 and 2020 tax years can be carried back five years with no limitation on their usage.

LIMITATION ON NET BUSINESS LOSSES

Prior loss limitations imposed under the TCJA are suspended.

Under the TCJA, taxpayers (other than C corporations) were limited in utilizing net business losses (i.e., business losses in excess of business income). These taxpayers were limited to using only $250,000 ($500,000 on a married joint return) of net business losses against non-business income. The CARES Act suspends this rule so that net business losses for 2018, 2019 and 2020 can be used without limit.

IMMEDIATE REFUND OF CORPORATE AMT CREDIT

The TCJA provided that the alternative minimum tax no longer applied to C corporations.

Those corporations with AMT credits were given the ability to recover these amounts as tax reductions and refunds over a four-year period (2018-2021.) The CARES Act accelerates this period to 2018 – 2019, with an election by the corporation to recover the AMT credit entirely in 2018.

BUSINESS INTEREST EXPENSE LIMIT INCREASED

The TCJA provided that net business interest is deductible only to the extent of 30% of Adjusted Taxable Income (unless certain exceptions apply).

The CARES Act increases this limit to 50% for 2019 and 2020. Additionally, since the current economic problems cause by COVID-19 are expected to produce lower income in 2020 than in 2019, the law provides that a taxpayer can elect to use the 2019 Adjusted Taxable Income in place of 2020.

BONUS DEPRECIATION FOR QUALIFIED IMPROVEMENT PROPERTY (QIP)

The CARES Act cures a legislative error under the TCJA and provides that the costs for Qualified Improvement Property are eligible for bonus depreciation. This provision is retroactive for 2018 QIP costs. REFUND OPPORTUNITY EXISTS HERE! Consult with your tax advisor whether amending your 2018 tax return(s) makes sense for you. You may receive immediate cash from the government.

@Michael Ablan

Under the TCJA, taxpayers (other than C corporations) were limited in utilizing net business losses (i.e., business losses in excess of business income). These taxpayers were limited to using only $250,000 ($500,000 on a married joint return) of net business losses against non-business income. The CARES Act suspends this rule so that net business losses for 2018, 2019 and 2020 can be used without limit.

This does not mean that rental real estate automatically qualifies. See my post above why.

@Jaleh Afrooze

Unless you are a real estate professional and operating your rental portfolio as a trade or business with material participation then this exception will not help you.