Last week the Internal Revenue Service issued two revenue procedures to help real estate companies get the most out of the tax relief offered under the CARES Act. It has also issued other guidance easing deadlines for like-kind exchanges and Opportunity Zones.
The Real Estate Roundtable, which had advocated for these changes, explains them in a research note it released on Friday. The two new revenue procedures are:
Partnership Amended Returns
The CARES Act included several provisions designed to generate deductions in prior years that can be “monetized” today, through the filing of amended tax returns, to help businesses stay afloat during the current economic turmoil. As the Senate Finance Committee summary noted, “[t]hese changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.”
In the rush to enact the CARES Act, Congress did not have an opportunity to consider fully how provisions in the legislation would interact with various aspects of existing tax law and regulations, the Real Estate Roundtable said. “In particular, under the partnership audit regime enacted in 2015, partnerships are no longer permitted to file amended tax returns.”
IRS Rev. Proc. 2020-23 allows partnerships to file amended returns for those years.
Business Interest Limitation
The Tax Cuts and Jobs Act created a new limitation on the deductibility of business interest, but allows real estate businesses to elect out, which most did in 2018. The election is irrevocable, and the price of the election is longer cost recovery periods for real property and improvements. The CARES Act liberalized the limitation on the deductibility of business interest for tax years 2019 and 2020. However, the law did not allow real estate businesses to go back and change their election out of the regime, the Real Estate Roundtable noted.
The IRS allows real estate businesses to go back and change their election out of the regime in Rev. Proc. 2020-22.
In addition to the actions related to the CARES Act, the IRS has provided relief to taxpayers having difficulty completing like-kind exchanges due to the COVID-19 pandemic, the Real Estate Roundtable also reports. Under IRS Notice 2020-23, like-kind exchange deadlines that would otherwise fall between April 1 and July 14 are extended to July 15.
Finally, IRS Notice 2020-23 provides that if a taxpayer’s 180-day period to invest gain in an opportunity fund would have expired between April 1 and July 14, 2020, the taxpayer now has until July 15, 2020 to make the investment.