Many taxpayers are receiving temporary relief as their stimulus deposit from the CARES (Coronavirus Aid, Relief, and Economic Security) Act is being driven. Businesses anticipate funds directed to help payroll and overhead. The investment real estate sector will benefit as well though not directly. To follow is a highlight of several provisions assisting the real estate investor.
1031 Like-Kind Exchange deadline extension
The 1031 like-kind exchange allows an investment property owner to defer potential capital gains taxes by selling (exchanging) one investment property for another. There are deadlines of 45-days to identify three like-kind properties and 180-days to complete the exchange. If the deadline falls between April 1, 2020, and July 15, 2020, the IRS is allowing an extension to July 15, 2020.
Qualified Opportunity Zone investment extension
A qualified opportunity zone (QOZ) is an area designated for real estate or business investment, allowing for special tax treatment. One advantage is for an investment property owner who would realize a capital gain on their investment property to sell and defer or eliminate capital gains taxes. The investor has 180 days after selling to place funds in a Qualified Opportunity Fund, which invests in a QOZ. If the investor’s 180-day deadline lands between April 1, 2020, and July 15, 2020, the IRS is allowing an extension to July 15, 2020.
Multi-family housing forbearance
The Federal Housing Finance Agency who oversees the federally-backed mortgage market, is directing lenders to allow forbearance of loan payments to borrowers of multi-family housing. In exchange, a borrower agrees to cease the eviction of any tenant unable to pay rent. A forbearance postpones loan payments during the crises.
Carry-back net operating losses
A provision of the CARES Act is to carry-back net operating losses from 2018, 2019, and 2020 to write off against more profitable years. An investor could amend a previous tax return up to five years when a tax was paid and receive an immediate refund.
Qualified improvement write-off
Previously depreciated over a 39-year life of a building, a qualified improvement to an investment property can now be expensed the year it was made. A qualified improvement is an internal upgrade to a property such as a remodeling project, new flooring, or new lighting. The CARES Act brings back the provision allowing for an immediate write-off of the cost of the improvements starting with the 2018 tax year.
California eviction moratorium
Governor Newsom signed an executive order placing a statewide moratorium on not evicting tenants who meet specific criteria. The tenant must have been current with their rent before the moratorium and must notify the landlord within seven days of rent being due that they will be unable to pay.
The criteria are that the tenant or a family member has the virus, is unable to work, has a loss of income, or must care for a child whose school is closed. The tenant must have a verifiable sickness of the virus and documentation of the loss of income. Protection currently is to May 31, 2020. Keep in mind this does not relieve tenants from having to pay rent, from landlords pursuing collections of past rent, and evicting a tenant for breach of other covenants and conditions of the lease.
Burt M. Polson is the CEO of ACRESinfo.com, a commercial real estate brokerage company and CEO of StoneMarkerInvestments.com, a private equity real estate fund. Call him at (707) 254-8000 or email [email protected] and [email protected].