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IRS Addresses Tax Implications Amid COVID-19 Relief

IRS Issues COVID-19 Guidance Outlining Limitations of Business Interest

The Treasury Department and Internal Revenue Service (IRS) issued guidance related to the limitation of business interest to account for modifications made under the Coronavirus Aid, Relief, Economic Security (CARES) Act. Specifically, the guidance enables businesses to withdraw a previous election to opt out business interest deductibility limitation rules to take advantage of higher deductibility thresholds provided for in the CARES Act.

While a taxpayer’s business interest deduction is generally limited to 30 percent of adjusted taxable income, the CARES Act increases this limitation to 50 percent of adjusted taxable income for 2019 and 2020. Businesses may also elect to use 2019 income for purposes of calculating their 2020 interest limitation. Notably, real estate trades or businesses may make an irrevocable election to opt out of the limitation on interest deductibility to retain the full deductibility of business interest. The consequence of opting out is that taxpayer must depreciate multifamily property over the Alternative Depreciation Schedule (40 years for property placed in service prior to 2018 and 30 years for property placed in service thereafter) instead of 27.5 years.

Revenue Procedure 2020-20 instructs taxpayers as to how to elect to use their 2019 adjusted taxable income amount to calculate their 2020 interest deductibility limitation. It also provides for how taxpayers can reverse a previous election to opt of business interest deductibility thresholds. To do so, a taxpayer must file an amended tax return, amended Form 1065, or administrative adjustment request along with an election withdrawal statement. The deadline is generally October 15, 2021. Amended returns must also make applicable depreciation adjustments.

NAA and NMHC will keep members apprised of ongoing activities as they relate to new IRS guidance. Check out the NAA COVID-19 Guidance and Resource for the latest coronavirus resources, news and advocacy updates.

IRS Extends 1031 Exchange and Opportunity Zone Deadlines

Days after NAA sent coalition letter asking the U.S. Treasury Department to take administrative action to delay deadlines applicable to like-kind exchanges that are currently underway, the Internal Revenue Service (IRS) announced a rule that lines up with industry requests.
 

The IRS guidance enacts the following provisions:

  • Taxpayers whose 45-day deadline to identify a replacement like-kind exchange property or whose 180-day deadline to close a like-kind exchange transaction expires on or after April 1 now have until July 15 to meet these deadlines. For example, a taxpayer whose 45-day identification period ends on April 15 now has until July 15 to identify replacement property. A taxpayer who has a May 15 deadline to close a transaction under the 180-day rule now has until July 15 to complete the transaction.
     
  • NAA is exploring whether the more generous like-kind exchange relief provided by Rev. Proc. 2018-58, which the IRS can turn to in times of disaster, was activated by yesterday’s announcement. If so, the 45-day and 180-day deadlines for identifying and closing on like-kind exchanges would be postponed by 120 days.
     
  • Finally, taxpayers who face a 180-day deadline expiring on or after April 1 to invest capital gains into an Opportunity Fund now have until July 15 to make such an investment.

In addition to April 15 estimated tax payments being due on July 15, the same is now true for second quarter payments previously due on June 15.

For more COVID-19 policy resources, please visit the NAA COVID-19 Policy Concern page. Additional COVID-19 information can be found on the NAA COVID-19 Guidance and Resource page.