What Landlords Should Know About COVID-19 Tax Relief for the 2020 Tax Year

COVID-19 has amplified many things about our society, one of which being how interconnected landlords and their tenants are. When tenants are struggling to pay rent, it directly affects your livelihood. The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, passed in March 2020, did provide some tax relief for small landlords, but what about tax relief in 2021? Here’s a look at what you should know for this year’s taxes. Please note that this is for informational purposes only and is not intended as financial advice.

Changes with December’s COVID Relief Package

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In December 2020, a second stimulus package was passed. This reversed an April 2020 IRS ruling that stated business expenses paid for with proceeds from a forgiven Paycheck Protection Program (PPP) loan were not eligible for tax deductions. With this reversal, forgiven PPP debt is no longer considered taxable income so you can deduct these funds as long as you meet the requirements. Additionally, this also applies to Economic Injury Disaster Loan (EIDL) grants.

“Tax extender” tax provisions that were set to expire on December 30, 2020, have also been extended for an additional year some of them have been made permanent. Some of these provisions that could benefit you as a landlord include:

  • Mortgage Insurance Deduction – Eligible property owners may deduct mortgage insurance premiums that were paid for using private and FHA/RHA/VA payments.
  • Energy-Efficient Commercial Buildings Deduction – The Section 179D deduction for commercial and multifamily housing units that meet or exceed energy efficiency standards has been made permanent.
  • Depreciation – The depreciation period for multifamily rental units has been shortened from 40 to 30 years.

Does the New COVID Relief Bill Include Additional Relief for Landlords?

The American Rescue Plan (the latest COVID relief bill) is projected to be signed into law in early March. This bill is set to provide $15 billion in grants for small businesses affected by the pandemic, as well as $175 billion in funding for small business loans and $30 billion in rental relief for tenants. These should, hopefully, help many landlords who have been hit hard by the pandemic. Additionally, the bill will include new legislation that will extend foreclosures and eviction moratoriums through September 30, 2021.

At this time there doesn’t appear to be any tax-specifics for landlords, however, President Biden has indicated that he intends to pursue additional relief legislation that could have broader tax implications.

Will These Tax Law Changes Affect my Taxes for Prior Tax Years?

Some of these changes will apply to previous tax years. For example, you can apply your 2018 – 2020 net operating losses as far back as five years from when the loss occurred. Businesses, including landlords, can also deduct loan interest that totals 50% of taxable income for the 2019 and 2020 tax years. Check with your accountant or financial advisor to see if you should amend your tax returns from previous years.

Will States Provide Additional COVID Tax Relief?

Some states may be implementing additional tax relief for landlords, however, the majority of it will be handled at the federal level. New York has introduced three different bills that would put a 3% cap on penalties for unpaid property tax assessments from smaller landlords during the pandemic.

With the large amount of tax-related changes being made in the past year, it’s more important than ever to speak with a knowledgeable tax professional to ensure you’re taking advantage of any tax relief as it applies to your rental business.

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