American entrepreneurs and small business owners often take pride in their rugged independence, but the reality is that we’re all interconnected to some degree. The COVID-19 crisis has amplified this reality, particularly for landlords. When your tenants struggle to pay the rent, it has a direct impact on your livelihood. The interdependent nature of the landlord and tenant relationship underscores the need for truly comprehensive federal relief. One way to do this is through the tax code.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 provided some tax relief for small landlords, including a significant expansion in deductions. The following information will get us up to speed on landlord benefits in the follow-up COVID relief package and the nearly $2 trillion aid package expected to be signed into law some time in early March.
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Was there any tax relief for landlords in the December 2020, $900 billion COVID relief package?
Yes. First of all, the second stimulus package reversed an April 2020 IRS ruling that business expenses paid for with proceeds from a forgiven Paycheck Protection Program (PPP) loan were not eligible for tax deductions. Because of this reversal, forgiven debt is no longer treated as taxable income and, therefore, business expenses paid for with these funds can be deducted as long as they’re otherwise allowed. This also applies to Economic Injury Disaster Loan (EIDL) grants.
Certain tax provisions, known as “tax extenders,” were set to expire on December 30, 2020. They were, however, extended for another year and, in some cases, made permanent. Tax extender provisions that may benefit landlords include:
- Mortgage Insurance Deduction. Eligible property owners may deduct premiums paid for private and FHA/RHA/VA insurance premiums.
- Energy-Efficient Commercial Buildings Deduction. The Section 179D deduction for commercial and multifamily housing units that meet or exceed certain energy efficiency targets is made permanent.
Another provision of the December 2020 COVID relief bill is the shortening of the depreciation period for multifamily rental units from 40 to 30. For landlords, this means
you will be able to depreciate a higher amount each year (given the shorter period of depreciation) and thus lower your tax obligation.
Does the new $1.9 trillion COVID relief bill include additional tax relief for landlords?
The latest COVID relief bill, called the American Rescue Plan, is expected to be signed into law some time in early March. It would provide $15 billion in grants for small businesses hard hit by the pandemic, along with $175 billion in funding for small business loans. This, along with $30 billion in rental relief for tenants and small landlords, should help many landlords. In addition, the new legislation would extend both the foreclosure and eviction moratoriums through September 30, 2021.
There don’t appear to be additional tax-specific benefits for landlords in this latest bill, although President Biden has indicated his intention to seek additional economic relief legislation that would have broader tax implications.
Will any of these changes in the tax law affect my taxes for prior tax years?
Yes, some of these tax law changes are applicable to past tax years. For instance, you can apply your 2018, 2019, and 2020 net operating losses as far back as five years from when the loss occurred. Also, businesses, including landlords, can now deduct loan interest totaling 50% of taxable income (up from 30%) for the 2019 and 2020 tax years.
Given the various changes to tax law, both short- and long-term, it’s always a good idea to ask your accountant whether you should amend your tax returns from prior years.
Are states providing additional COVID tax relief for landlords?
In addition to federal efforts, some states are stepping in with tax relief for landlords hit hard by the pandemic. New York lawmakers, for instance, have introduced three separate bills that would set a 3% cap on penalties for unpaid property tax liabilities, extend the deadline for property taxes owed by small landlords; and prohibit fees on real property tax assessments owed by smaller landlords during the state disaster emergency.
State provisions often echo federal tax law, such as the extension of filing deadlines, but most tax-related relief is done at the federal level.
Take advantage of tax relief during the COVID-19 crisis
Whether it’s tax relief, direct aid for tenants and landlords, or greater access to loans, federal and state governments have an interest in keeping small businesses afloat and thriving during this difficult time. Stay informed of your options and speak with an attorney if you have additional questions.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.