On March 19, 2020, Senate Republicans introduced the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, or the Act). This legislation would still have many steps before becoming law, but it indicates the manner in which the Senate is looking to provide economic stimulus. If signed into law, the Act would provide tax relief to individuals and corporations.
Highlights of the current Bill include:
An extension of the time to file tax returns and make estimated payments. Individuals and corporations would have until July 15 to file their 2019 tax returns and would have until October 15 to make any estimated payments.
Ability to accelerate the tax benefits of net operating losses (NOLs). The Act would allow taxpayers to utilize NOLs to offset 100 percent of taxable income as well as carry back certain NOLs for five years. The section name within the Act implies that this carryback treatment is intended to apply to NOLs generated during the 2018, 2019 and 2020 tax years. However, the language of the section reads as to only allow the treatment for NOLs generated in the 2018 and 2019 tax years. This distinction is important as many taxpayers expect the economic impact of the coronavirus to be felt in 2020, while 2018 and 2019 were times of economic prosperity for many taxpayers. Hopefully this item will be addressed in revisions of the Act.
Temporary removal of the excess business loss limits. These excess losses were limited by the Tax Cuts and Jobs Act (TCJA) for tax years beginning after Dec. 31, 2017. The Act would allow these business losses to be taken currently by taxpayers.
Modification of the 163(j) interest expense limitation allowing taxpayers to currently deduct more interest expense. Taxpayers have been limited to a current interest expense deduction not to exceed 30 percent of adjusted taxable income (ATI). The Act would modify this by allowing a deduction up to 50 percent of ATI. The Act would also allow taxpayers to use taxable income from 2019 to determine this interest limitation if desired.
Fix for the “retail glitch.” The intent of Congress with the TCJA was to allow certain real property, known as qualified improvement property (QIP), to have a 15-year depreciable life and be eligible for additional first-year depreciation or bonus depreciation. This intent was demonstrated in the Committee Reports accompanying the TCJA; however, a drafting error excluded the necessary amendments to the Internal Revenue Code to accomplish this. As a result, this type of property currently has a 39-year life and is not eligible for bonus depreciation. The Act would provide amendments in order to achieve Congress’s intent with respect to the depreciation of QIP. This change would be retroactively effective back to the date of the TCJA enactment.
For more information, reach out to us at taxCARES@dhg.com or visit the DHG COVID-19 page for additional resources.