As the Treasury continues to release guidelines in response to the COVID-19 crisis, we will provide a summary of important provisions for your consideration.
Extended 1031 exchange identification and exchange periods
- Exchangers whose 45-day identification period or 180-day exchange period falls between April 1, 2020, and July 15, 2020, will have until July 15 to complete these actions.
- It is not clear if the above extension would apply retroactively to revive failed exchanges that have already distributed the exchange proceeds because of a missed deadline.
- It is also not clear if the IRS would extend these deadlines by 120 days from whenever they would otherwise have run out.
- We will keep you updated as we learn more.
Increased interest expense deduction limitation – Tax Code Section 163(j)
- Under the Tax Cuts and Jobs Act (“TCJA”), a business and real property owner is only allowed to deduct the interest expense it pays on its loans to the extent the amount does not exceed 30 percent of the entity’s adjusted taxable income (“ATI”). Businesses may elect out of the limitation in return for accepting less favorable ADS depreciation periods.
- Under the CARES Act, for taxable years beginning in 2019 and 2020, the allowable interest deduction has been increased to 50% of ATI. However, the 2019 increase does not apply to partnerships.
- The IRS issued guidance on April 10 allowing taxpayers to withdraw prior irrevocable elections made to avoid business interest limitations but inadvertently disqualified improvement property that would otherwise qualify for immediate expensing under the
- The IRS has also provided guidance on how to:
- elect out of the 50 percent ATI limitation for taxable years beginning in 2019 and 2020,
- use the taxpayer’s ATI for the last taxable year beginning in 2019 to calculate the taxpayer’s section 163(j) limitation for the taxable year 2020, and
- elect out of deducting 50 percent of excess business interest expense for taxable years beginning in 2020 without limitation.
Paycheck Protection Program (PPP) Loans Clarification
We had previously indicated that as a condition of receiving the PPP loan that you would be restricted in making distributions during the term the loan was outstanding plus 12 months and have certain restrictions on compensation. This has been clarified and does not apply to the program. At present, the SBA has stopped accepting applications and is waiting for approval to obtain additional funding.
Extended filing, payment, and other statutory deadlines
- Taxpayers with a Federal income tax return or payment due on April 15, 2020, is automatically extended to July 15, 2020.
- The deferment applies to all taxpayers, including individuals, trusts and estates, corporations, and other non-corporate tax filers as well as those who pay self-employment tax.
- Please visit the special Coronavirus Page on IRS.gov here for more detail.
- California has also conformed to the extended due date to file and pay. For a complete list of extensions on ftb.ca.gov, please click here.
- In addition, you may check the status of your economic impact payment status on the
IRS website here.